HROB Study Guide 2

Corporate Finance
UNIT 3
The Financing Side of the Company
Bangor Business School – Executive Education
Chartered Banker MBA

Human Resources and
Organisational Behaviour
UNIT 2
Group level processes in
organisational behaviour and HRM
Page 1 Human Resources Organisational Behaviour Unit 2

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Personal Profile
Dr Olga Suhomlinova
Member of Bangor University Adjunct Faculty
Olga Suhomlinova is currently Associate Professor of Management at the University of Leicester

School of Business. She has received BA in Political Economy from Moscow State University (Russia)
and PhD in Sociology from Duke University (USA) and taught organizational behavior and human
resource management courses for Duke University, University of Bath, University of Nottingham, and
Manchester Business School Worldwide. She has widely published in the areas of organizational
behavior and theory, including articles in American Sociological Review, Human Relations, Journal of
Management, Journal of Management and Organization, Journal of Management Studies, Journal of
Applied Behavioral Science, Leadership Quarterly, Organization Studies, and Public Administration.
Her research has covered a variety of industries (construction, banking, education, healthcare),
countries (the UK, Russia, Bulgaria) and topics (managerial work and identity, organizational change,
leadership).

Contents
About this study guide ............................................................................................................................ 2
Personal Profile ....................................................................................................................................... 3
Section 1: Motivation .............................................................................................................................. 9
1.1 Learning objectives ................................................................................................................. 9
1.2 Linked reading ......................................................................................................................... 9
1.3 Defining motivation ................................................................................................................ 9
1.3.1 Basic motivation process .................................................................................................. 11
1.4 Theories of motivation .......................................................................................................... 11
1.4.1 Maslow’s hierarchy of needs ............................................................................................ 12
1.4.2 Self-determination theory ................................................................................................ 16
1.5 Do employers know what employees need and want? ........................................................ 22
1.6 Intrinsic and extrinsic motivation ......................................................................................... 24
1.6.1 Does intrinsic motivation predict performance? .............................................................. 25
1.6.2 How do incentives affect intrinsic motivation? ................................................................ 26
1.6.3 What matters more: incentives or intrinsic motivation?.................................................. 27
1.6.4 Intrinsic versus extrinsic motivation: practical implications ............................................. 28
1.7 Next Steps ............................................................................................................................. 29
1.8 TAKEAWAYS .......................................................................................................................... 29
1.9 Answers ................................................................................................................................. 30
Section 2: Reward management ........................................................................................................... 30
2.1 Learning objectives ............................................................................................................... 30
2.2 Linked readings ..................................................................................................................... 30
2.3 Defining reward management .............................................................................................. 31
2.4 Reward philosophy, strategy and system ............................................................................. 32
2.5 Reward system ...................................................................................................................... 33
2.5.1 Total rewards .................................................................................................................... 33
2.5.2 Reward system design choices ......................................................................................... 35
2.5.3 Factors affecting reward structure ................................................................................... 36
2.6 Financial rewards .................................................................................................................. 37
2.6.1 Pay structure and pay progression ................................................................................... 37

2.6.2 Types of pay structure ...................................................................................................... 37
2.6.3 Pay progression arrangements ......................................................................................... 40
2.6.4 Market pricing and job evaluation .................................................................................... 41
2.7 In focus: pay for performance............................................................................................... 44
2.7.1 Pay for performance plans: strengths and shortcomings ................................................. 44
2.7.2 Pay for performance: causes of failure ............................................................................. 46
2.8 Benefits ................................................................................................................................. 47
2.9 Non-financial rewards ........................................................................................................... 48
2.10 Equity in rewards .................................................................................................................. 50
2.10.1 Consequences of perceived inequity ............................................................................ 51
2.10.2 Practical implications .................................................................................................... 52
2.10.3 Distributive and procedural justice ............................................................................... 52
2.10.4 Impact of justice............................................................................................................ 55
2.10.5 Improving perceptions of justice .................................................................................. 56
2.10.6 Environmental impacts on perceptions of justice ........................................................ 56
2.11 Increasing effectiveness of reward management system .................................................... 57
2.12 TAKEAWAYS .......................................................................................................................... 60
Section 3: Performance management .................................................................................................. 61
3.1 Learning outcomes................................................................................................................ 61
3.2 Linked readings ..................................................................................................................... 62
3.3 Defining performance management..................................................................................... 62
3.4 A broad view of performance management......................................................................... 64
3.5 Strategic approach to performance management ............................................................... 65
3.6 Performance management cycle .......................................................................................... 66
3.7 Goal-setting ........................................................................................................................... 68
3.7.1 Not so SMART goals .......................................................................................................... 69
3.7.2 Research evidence on goal setting.................................................................................... 69
3.7.3 Types of goals.................................................................................................................... 71
3.7.4 Task complexity and task novelty ..................................................................................... 72
3.7.5 Goals for studying ............................................................................................................. 73
3.7.6 Considerations for goal setting ......................................................................................... 74
3.7.7 Goal setting: a checklist .................................................................................................... 75

3.8 Performance appraisal .......................................................................................................... 76
3.8.1 Performance appraisal effectiveness ................................................................................ 77
3.8.2 Getting rid of ratings? ....................................................................................................... 82
3.9 Performance feedback .......................................................................................................... 85
3.9.1 Developing feedback skills ................................................................................................... 86
3.9.2 Building trust for effective feedback................................................................................. 88
3.10 De-formalising performance management .......................................................................... 89
3.10.1 Communicate the big picture ....................................................................................... 89
3.10.2 Streamline the administrative requirements................................................................ 90
3.10.3 Develop others through experience ............................................................................. 90
3.11 New thinking in performance management ......................................................................... 91
3.12 TAKEAWAYS .......................................................................................................................... 92
Section 4: Job satisfaction and work design ......................................................................................... 93
4.1 Learning objectives ............................................................................................................... 93
4.2 Linked readings ..................................................................................................................... 94
4.3 Defining job satisfaction ....................................................................................................... 94
4.4 Defining work design ............................................................................................................ 95
4.5 Work design: A bit of history ................................................................................................ 96
4.6 Work design model ............................................................................................................... 97
4.6.1 1. Task characteristics ....................................................................................................... 97
4.6.2 2. Knowledge characteristics ............................................................................................ 98
4.6.3 3. Social characteristics ..................................................................................................... 99
4.6.4 4. Work context................................................................................................................. 99
4.7 Motivational work design in practice ................................................................................. 100
4.7.1 More characteristics, more choices ................................................................................ 100
4.7.2 How do job characteristics motivate? ............................................................................ 100
4.7.3 Impact of work design: research evidence ..................................................................... 101
4.7.4 Practical implications of work design model and questionnaire .................................... 102
4.7.5 Motivational work design in workplace .......................................................................... 105
4.8 Work characteristics and personality: The theory of purposeful work behavior ............... 106
4.8.1 Person’s dispositions....................................................................................................... 106
4.8.2 Work characteristics ....................................................................................................... 107

4.8.3 Model of purposeful work behavior (motivation) .......................................................... 107
4.8.4 Practical implications ...................................................................................................... 109
4.9 TAKEAWAYS ........................................................................................................................ 109
Section 5: Groups and teams .............................................................................................................. 110
5.1 Learning objectives ............................................................................................................. 110
5.2 Linked readings ................................................................................................................... 111
5.3 Defining groups ................................................................................................................... 111
5.4 Factors affecting group dynamics and performance .......................................................... 113
5.4.1 Group size ....................................................................................................................... 113
5.4.2 Group composition: diversity.......................................................................................... 114
5.4.3 Group composition: homogeneity vs. heterogeneity ..................................................... 115
5.4.4 Cohesion.......................................................................................................................... 117
5.4.5 Group norms ................................................................................................................... 118
5.4.6 Group development ........................................................................................................ 121
5.4.7 Group tasks ..................................................................................................................... 126
5.5 Motivation in groups........................................................................................................... 129
5.5.1 Motivation losses in groups ............................................................................................ 129
5.5.2 Motivation gains in groups ............................................................................................. 131
5.6.1 Groupthink ...................................................................................................................... 133
5.6.2 Group polarisation .......................................................................................................... 135
5.7 Teams .................................................................................................................................. 137
5.7.1 What is a team? .............................................................................................................. 137
5.7.2 Types of teams ................................................................................................................ 138
5.7.3 Describing teams: A “Global Positioning System” framework........................................ 138
5.8 Team effectiveness ............................................................................................................. 142
5.8.1 Inputs .............................................................................................................................. 143
5.8.2 Processes......................................................................................................................... 144
5.9 Training teams .................................................................................................................... 154
5.9.1 Types of team-training methods..................................................................................... 154
5.9.2 Team-building interventions ........................................................................................... 154
5.10 Summing up ........................................................................................................................ 155
5.11 TAKEAWAYS ........................................................................................................................ 156

Section 6: Leadership .......................................................................................................................... 158
6.1 Learning objectives ............................................................................................................. 158
6.2 Linked readings ................................................................................................................... 158
6.3 Defining leadership ............................................................................................................. 158
6.3.1 Are managers leaders? ................................................................................................... 159
6.4 Leadership: power and influence........................................................................................ 160
6.5 Leadership theories............................................................................................................. 161
6.5.1 Traits approach ............................................................................................................... 161
6.5.2 Behavior or style approach ............................................................................................. 162
6.5.3 Contingency or situational approach .............................................................................. 165
6.5.4 Transformational leadership approach........................................................................... 166
6.5.5 Charismatic leadership .................................................................................................... 167
6.6 Leadership ethics ................................................................................................................ 168
6.6.1 Authentic leadership ....................................................................................................... 169
6.6.2 Servant leadership .......................................................................................................... 169
6.6.3 Ethical leadership ............................................................................................................ 170
6.7 Substitutes for leadership ................................................................................................... 171
6.8 Critical approach to leadership ........................................................................................... 172
6.9 Leadership and followership ............................................................................................... 173
6.9.1 Followership styles .......................................................................................................... 173
6.9.2 Distributed leadership..................................................................................................... 175
6.10 Summing up ........................................................................................................................ 176
6.11 TAKEAWAYS ........................................................................................................................ 177
References........................................................................................................................................... 179

Section 1: Motivation
1.1 Learning objectives
After completing this section you will be able to
• define motivation
• explain the role of needs in motivating individuals
• identify practical implications of Maslow’s hierarchy of needs
• identify practical implications of the self-determination theory of motivation
• identify three beliefs that help determine work effort, according to expectancy theory
• demonstrate awareness of the impact of extrinsic and intrinsic motivation on performance
• employ the knowledge of motivation to diagnose and solve performance and other behavioral
problems in work organizations.
1.2 Linked reading
Organizational Behavior, Chapter 6 Motivation
1.3 Defining motivation
How many times have you wondered: “Why can’t I get myself going today?” How many times have
you complained that your employees are disengaged and lacking in enthusiasm to do their work?
What makes you direct your effort to a work assignments rather than to taking a break? What makes
you help out a colleague? Does paying more make people work more or better?
Broadly, motivation is the general answer to the question of why we do what we do, especially why
we do things that are hard to do. The concept of motivation refers to internal factors that impel action
and to external factors that can act as inducements to action.
Companies invest substantial financial resources in reward management systems and practices
(encompassing fixed and variable pay, benefits, and nonfinancial rewards) to attract, retain, and
motivate employees and thereby to ensure and improve organizational competitiveness and
performance. In the face of the financial crisis and of serious cases of employee and company
unethical behavior, financial incentives have been widely criticized for their detrimental effects for
individuals, companies, and society. On the other hand, we also know that financial incentives can
improve employee motivation and performance. These examples of the dark and bright side of

financial incentives highlight the importance of reward management for employees, companies, and
society.
In this section we will discuss what motivates people, whether incentives work and whether they work
better than intrinsic motivators. In the next sections we will further develop the discussion of
motivation in application to reward management, performance management and work design.
The word motivation derives from the Latin verb movere meaning ‘to move’. What moves a person
to make certain choices, to engage in action, to expend effort and persist in action? Such basic
questions lie at the heart of motivation theory and research. Over the decades, these deceptively
simple questions have generated a wealth of studies, provoked considerable debate and
disagreement among scholars, and spawned numerous models encompassing different
understandings of the construct of motivation.
What has prevented a consensus in our understanding of motivation? Perhaps, a helpful analogy to
draw here is with the well-known Indian fable of the blind men encountering an elephant, each
touching a different part of the animal (tusk, tail, ear, trunk, and belly) and ending up with a very
different mental representation of the animal. Similarly, when it comes to understanding motivation
– that is, the potential range of influences on human behavior – researchers are inevitably selective
in their focus since it seems impossible to capture the whole picture.
Therefore, no existing motivation theory to date has managed (or even attempted) to offer a
comprehensive and integrative account of all the main types of possible motives, and it may well be
the case that devising an integrative ‘super-theory’ of motivation will always remain an unrealistic
desire. After all, motivation theories intend to explain nothing less than why humans think and behave
as they do, and it is very doubtful that the complexity of this issue can be accounted for by a single
theory.
Still, there is a general agreement that motivation is a basic psychological process that concerns:
1. the direction of action, i.e. what a person chooses to do;
2. the intensity of action, i.e. how much effort the person is willing to put into the activity; and
3. the persistence of action, i.e. how long the person is willing to sustain the activity.
Remember, however, that motivation is only one of causes of behavior and it operates in conjunction
with other mediating processes (such as perception) and with the environment. Note also that
motivation is a cognitive process and cannot be seen. Motivation, in a sense, is a hypothetical
construct that is used to help explain behavior; but it should not be equated with behavior.

1.3.1 Basic motivation process
Basic motivation process consists of three interacting elements: needs, drives, and incentives.
Needs arise when there is a physiological or psychological imbalance. A need arises when, say, the
person is deprived of water or deprived of the company of other people. Needs are categorised into
primary and secondary:
• Primary needs are physiologically based and unlearned. They include hunger, thirst, sleep,
avoidance of pain, sex, and maternal concern.
• Secondary needs are psychologically based and learned. They include need for achievement,
need for power, need for affiliation, need for security, and many other needs.
Drives are set up to alleviate needs. The need for water is translated into the thirst drive, and the need
for friends - into the drive for affiliation.
Incentives are anything that would alleviate the need and reduce or cut off the drive. Drinking water
and gaining friends would restore the balance and reduce the corresponding drives.
It is also important to note that motivation is a very specific thing. Although we often talk about
motivation in general terms – we say “our employees, or subordinates, or teammates, whatever, lack
motivation”, we need to remember that in practice motivation is motivation is about a specific choice
– between doing A or B. When an employee is playing a computer game rather than completing the
report you told them to finish, they don’t lack motivation ‘in principle’. Indeed, they are perfectly well
motivated to play the game– they just lack motivation to do the task you’ve assigned them, because
playing a computer game is more enjoyable than completing a report.
So the question you need to ask yourself is: Motivation to do what? To take a job offer? To stay in the
job? To work faster? To work with fewer errors? To comply with a rule? To help co-workers? To design
something new? To achieve individual goals? To achieve team goals? And so forth.
1.4 Theories of motivation
This section presents two out of many motivation theories available in the literature:
(1) Maslow’s hierarchy of needs, as the historically first, and still highly popular, theory;

(2) self-determination theory, as a current theory with the largest base of empirical research across
a wide variety of fields (from health to work); and
The section highlights conceptual arguments and practical implications of these theories.
Your textbook, in Chapter 6 Motivation, presents another four theories:
(1) expectancy theory,
(2) goal-setting theory,
(3) equity theory, and
(4) psychological empowerment.
It also discusses the application of motivation concepts to the design of compensation systems. Thus,
your study guide and your textbook complement each other. Note that in this guide we will also briefly
cover goal-setting theory – but in the section on performance management, as it links directly to
setting performance targets; and so we will invite you to read (or re-read) your textbook’s section on
goal-setting when you will be studying the topic of performance management.
Similarly, we will refer to equity theory – but in the section on reward management, as it links to the
issues of justice and fairness in rewards. Therefore, we will invite you to read (or re-read) your
textbook’s section on equity theory when you will be learning about reward management.
Finally, in the section on job satisfaction and work design we present yet another theory of motivation
– theory of purposeful work behavior, which is relevant to the issues discussed in that section.
Note please that the term “compensation” is more frequently used in the US, while in the UK it is more
customary to refer to “rewards”. It might be interesting to explore, from cross-cultural perspective,
whether and how these terminological differences reflect different attitudes to
compensation/rewards in the two countries).
1.4.1 Maslow’s hierarchy of needs
Maslow’s theory is easily the best known of all motivation theories. In an article published in the
middle of Second World War, in 1943, entitled ‘A theory of human motivation’, the US psychologist
Abraham Maslow suggested that all individuals have several types of needs. These needs may be
arranged in a hierarchy, from the most basic to the most advanced. This hierarchy is usually depicted
as a pyramid.

At the bottom of the hierarchy lie physiological needs. These are the primary needs, such as the needs
of hunger, thirst and sleep. They stem from the lack of chemicals, nutrients, or internal (e.g. exercise)
and environmental (e.g. temperatures) conditions necessary for the body to survive, such that the
extended absence of these things could lead to psychological stress or physical death.
The next level is safety and security needs. These are the needs relating to both physical and emotional
safety. They arise from the lack of protections, such as shelter from environmental dangers and
disasters, personal protection from physical harm, financial protection from destitution, legal
protection from attacks on one’s rights to a peaceful existence, the lack of job security, a lack of
stability in one’s life.
In the middle are love and belongingness needs. These are social needs that reflect a lack of close,
lasting, emotionally pleasant interactions with other people, in groups as well as in intimate dyads.
They yield personal relationships characterised by mutual affective concern (e.g. family, friendships,
and work group).
The fourth level is esteem needs. These needs arise from the lack of respect a person has for
himself/herself or from the lack of respect a person receives from other people. The needs for power,
achievement and status can be considered part of this level.
The topmost level is self-actualisation needs. These needs concern “people’s desire for self-fulfilment,
namely, the tendency for them to become actualized in what they are potentially”, or “the desire to
become more and more what one idiosyncratically is” (Maslow, 1987: 22).
Maslow’s hierarchy of needs

The hierarchical arrangement of these needs suggests that some motives take precedence over
others, which in turn take precedence over others. If a person is starving, for example, the desire to
obtain food will trump all other goals and dominate the person’s thought processes.
However, once a need has been satisfied, it releases the person to start focusing on satisfying the
need at the next level up in the hierarchy. Say, when one’s safety and security needs are largely
satisfied, one will be able to pay more attention to satisfying his or her need to form pleasant
interactions with others; and so forth.
This does not mean that “individuals rigidly progress through the hierarchy, that is, that a lower level
need must be totally satisfied before the next level can begin to provide motivational force”. Indeed,
Maslow (1943: 370), said that: “Most members of society are partially satisfied in all their basic needs
at the same time […] Any motivated behavior . . . is a channel through which many basic needs may
be simultaneously expressed or satisfied. Typically, an act has more than one motivator.”
The need satisfaction is always relative. We can never be completely – as in ‘once and for all’ – satisfied
in our needs. In simplistic terms, we satisfy our hunger at breakfast but we will be hungry again at
lunchtime and again for dinner. In more sophisticated terms, our needs develop and increase as we
satisfy them. For instance, you may have been at one point satisfied with just having a roof over your
head, but a later point you would feel the need to have a room for each family member.
However, in general terms the hierarchy of needs makes sense. And it is why the Maslow’s hierarchy
has been so popular. Of course, the appeal of the pyramid image should not be underestimated.
People are fond of ranking everything. And if Maslow chose a different shape it may not have had the
same iconic appeal. But the major reason for the popularity of Maslow’s hierarchy is that it
corresponds to our common sense and intuition. We all know that different motives prevail at
different times and that the order in which we attend to them has a predictable regularity. Immediate
physiological needs typically trump social and intellectual needs. Anyone who has driven in a car along
a highway with a full bladder knows that signs for ‘‘scenic views’’ do not grab attention as much as
those promising ‘‘facilities.’’
So, the hierarchy in broad terms is accurate. The details are more controversial, but even a closer look
at the hierarchy shows it to be usually true. Exceptions exist, but they are few enough to be interesting
as opposed to theoretically damning. For example, parents will run into a burning building to rescue
their children. Bone marrow donors will undergo a painful procedure on the behalf of strangers.
People will blow whistles at work even if it means the loss of their livelihood and the esteem of their
immediate colleagues. These exceptions to the hierarchy attract our attention because the hierarchy
describes the way most of us behave most of the time.
Maslow first presented his theory in 1943. Have the scientific advances since then obviated the
hierarchy? Apparently not. In 2010, Kenrick and colleagues (2010) revisited Maslow’s hierarchy in light
of new developments in evolutionary biology, anthropology, and psychology. They have confirmed

that, from the points of view of evolution of human beings, individual human development, and
cognitive psychology, the hierarchy of needs is valid. They have updated the hierarchy – but rather
slightly: they just added two more need levels – (1) mate acquisition and retention and (2) parenting
needs – slotting them between esteem and selfactualisation needs. They also slightly revised the
picture to reflect that higher needs or goals do not completely replace the lower ones – after all, we
do need to eat regularly and we do need to maintain our relationships to feel loved. Otherwise, the
theory has stood the test of time.
(Incidentally, In addition to the five needs within the hierarchy, Maslow also made reference to four
more other needs: freedom of inquiry and expression, transcendence, aesthetics, and knowing and
understanding. These do not directly fit into the hierarchy, but could possibly be placed somewhere
near the top.)
Some writers have criticised Maslow’s theory for using ideas that are based only in Western culture.
However, the results of Taormina and Gao’s study (2013), in which the scales developed to assess the
need satisfaction were tested on a large sample of people in China, confirm that Maslow’s ideas are
applicable in Eastern cultures as well.
Practical implications
The most general take-away from the Maslow’s theory is that when trying to motivate people we must
first assess, understand and attend to their needs – and that these needs are diverse and multifaceted.
Another implication is that, in motivation, we should focus on self-actualisation needs, rather than on
‘lower level’ needs. Of course, Maslow did not suggest neglecting the material needs, but he
emphasised that self-actualisation is essential for well-being. If you appeal solely to the lower needs
you will only reinforce – but not satisfy – them. You will also stifle the growth into the higher level
needs arenas and will perpetuate a lack of psychological well-being. For Maslow, a self-centred,
acquisition-driven approach to life and work is a dead end.
The simplicity and intuitive appeal of the hierarchy of needs have assured its perennial popularity. The
model which has been integrated not only in the teaching of management but also in practice. Indeed,
we can easily translate Maslow’s hierarchy into work context:
The first level would correspond to the base pay. The fundamental survival needs must be met with
wages which in turn provide food, water, heat, clothing, and so forth.
With adequate wages, the individual will seek safety on the job. This includes not only physical, but
mental safety, as adequate benefits or union contracts would mean the decreased anxiety. Training
occupies an important position at this level because employees consciously and subconsciously relate
training to safety. For instance, a person trained on a piece of machinery is a safer worker than one
that has not had the training and has been required to learn by trial and error. Furthermore, the

worker also associates the willingness of the company to spend resources, time and money, on his/her
training as an assurance that he/she is of value to the company.
Progressing to the third level will entail seeking social belongingness in the workplace. Anyone having
experienced the ordeal of feeling socially uncomfortable in a work setting can understand the
importance of workplace collegiality. We seek pleasant working relationships with co-workers, peers,
and others in the hierarchy; we seek to find our place in formal and informal work groups. The social
needs wax and wane on the strength of our personal relationships and our participation with others
in the organization.
Self-esteem in organizational context is generally based on the individual’s successful performance

appraisals, incentives, rewards received and recognitions obtained, all which enhance self-confidence.
Finally, we reach the self-actualisation needs – and that’s where the interesting, challenging work that
provides opportunities for growth and development comes into play.
1.4.2 Self-determination theory
The second motivation theory we introduce here is self-determination theory (SDT). Similarly to
Maslow’s theory, SDT postulates some basic needs, but focuses on fewer needs than Maslow (Gagné
and Deci, 2005).
SDT suggests that people have three psychological needs underlying work motivation: the need to feel
competent, the need to feel autonomous and the need for relatedness. When these needs are
satisfied, this promotes physical and mental health and psychological growth. When these needs are
frustrated, this leads to energy depletion, dysfunction and illness. In particular:
• The need for autonomy refers to the need to feel that one has a choice in what one does
rather than being pressured and coerced into doing something. When this need is frustrated,
people feel that they act against their will.
• The need for relatedness refers to the need to have mutual connection with and care for
important others. When this need is frustrated, person feels a lack of communion and close
connection with others.
• The need for competence refers to the need to feel effective and masterful. When this need
is frustrated, people feel ineffective and unable to achieve desired outcomes.
Two distinctions are central to the self-determination theory: between autonomous and
controlled motivation and between extrinsic and intrinsic motivation.

• Autonomous motivation involves acting with a sense of volition and choice. In contrast,
controlled motivation involves acting with a sense of pressure, a sense of having to engage in
the actions.
• In turn, extrinsic motivation refers to doing an activity for an instrumental reason, while
intrinsic motivation is the individual’s desire to perform the task for its own sake.
These types of motivation can be aligned along a continuum from controlled and extrinsic to
autonomous and intrinsic, as follows:
Motivation continuum
In a simplified way, this continuum of motives can be presented as follows:
Motivation continuum (simplified version)

In this version, the tenets of the self-determination theory have been translated into 3 “good” and 3
“bad” motives.
The good motives are play, potential and purpose.
• Play is when you are motivated by the work itself. You work because you enjoy it. A teacher
at play enjoys the core activities of teaching – creating lesson plans, grading tests, or problem
solving how to break through to each student. Play is our learning instinct, and it’s tied to
curiosity, experimentation, and exploring challenging problems.
• Purpose is when the direct outcome of the work fits your identity. You work because you
value the work’s impact. For example, a teacher driven by purpose values or identifies with
the goal of educating and empowering children.
• Potential is when the outcome of the work benefits your identity. In other words, the work
enhances your potential. For example, a teacher with potential may be doing his job because
he eventually wants to become a principal.
The bad motives are inertia, economic pressure, and emotional pressure.
• Emotional pressure is when you work because some external force threatens your identity. If
you’ve ever used guilt to compel a loved one to do something, you’ve inflicted emotional
pressure. Fear, peer pressure, and shame are all forms of emotional pressure. When you do
something to avoid disappointing yourself or others, you’re acting on emotional pressure. This
motive is completely separate from the work itself.
• Economic pressure is when an external force makes you work. You work to gain a reward or
avoid a punishment. Now the motive is not only separate from the work itself, it is also
separate from your identity.
• Finally, inertia is when the motive is so far removed from the work and your identity that you
can’t explain why you’re working. When you ask someone why they are doing their work, and
they say, “I don’t know; I’m doing it because I did it yesterday and the day before,” that signals
inertia.
The key message of self-determination theory is that neither the carrot nor the stick are good
motivators – whether these carrots and sticks are external to the person or have been internalised.
Solid motivation can only come from within, and the best motivation is the intrinsic motivation – when
you find the job exciting, interesting and fulfilling.
Research evidence
A recent meta-analysis by Cerasoli et al. (2016) shows just how important the satisfaction of the needs
for competence, relatedness, and autonomy is. According to the study’s results (which analysed the
findings from 108 previous studies, covering over 30 thousand respondents),

• the satisfaction of competence need has the largest impact on performance – with the
correlation of 0.37;
• the second largest impact is exerted by the satisfaction of the need for autonomy – with the
correlation of 0.28;
• finally the satisfaction of need for relatedness, although in the last place, also has a
considerable impact on performance (0.25)
Those employees who perceive that their autonomy, relatedness and competence needs are met tend
to outperform those who do not. So, the recommendations stemming from the self-determination
theory regarding these needs are certainly worth paying attention to. Rather than asking yourself:
“What can I give people to motivate them?” you need to ask “How can I facilitate people’s satisfaction
of autonomy, relatedness, and competence?”
Practical implications
In practical terms, the Self-Determination Theory suggests that organizations should develop the work
environment that fosters:
• competency to master a skill and achieve a successful outcome;

• autonomy to choose the best method of working;
• relatedness to connect with and interact with others;
In recruitment and selection, organizations should explain to the candidates:
• how employees are free to determine how they work and with whom they work;
• how employees are encouraged to master their areas of expertise;
• how employees derive a sense of purpose from their work.
While, according to SDT, intrinsic motivation is the preferred type of motivation, in the circumstances
where it is not possible to achieve intrinsic motivation, research recommends that managers focus on
creating autonomy-supporting work environment to help achieve “identified regulation”, which is the
next best thing.
In concrete terms, to support employee autonomy, managers should acknowledge their subordinates
perspectives, provide information in a non-controlling way, offer choice, and encourage employees
to initiate their own actions, rather than pressuring the subordinates to behave in specified ways.
Managers should also be trained to exhibit a supervisory style more supportive of autonomy. The
training may include group discussions and role-play on the themes, such as how to maximise
opportunities for employee to take initiative; how to give informational feedback in a non-controlling
manner, and how to recognise and accept subordinates’ perspectives (their needs and feelings).

Another way to apply SDT in organizational context is to assess employees’ motivations using the
Multidimensional Work Motivation Scale.
Assessing motivation
The Multidimensional Work Motivation Scale has been developed on the basis of SDT theory by Gagne
et al. (2014). It has been validated across seven languages and nine countries (Canada, Belgium,
France, Senegal, United Kingdom, Norway, Switzerland, China and Indonesia). This questionnaire can
be administered to identify how people are currently motivated and to establish what needs to be
done to help them progress closer to full intrinsic motivation. Notes Bangor Business School
Multidimensional Work Motivation Scale

Gamification of work
Another application of SDT has been to the gamification of work. Gamification means that game
features are embedded into activities that are not themselves games. It is increasingly common to see
gamification applied to non-game contexts, including education, marketing and work. Work
gamification does not mean changing work into a game; rather, it involves using game features to
direct and energise desired worker behavior. Work gamification frames work in the metaphors and
language of computer gaming and includes elements such as points, levels, badges, leaderboards and
character sheets (Cardador et al., 2016).
In games, points and levels can be accrued for the performance of specific tasks important to the
ultimate goals of the game (e.g. rescuing the princess, finding the treasure). For example, in Super
Mario Brothers, players earn points by defeating enemies or collecting coins. By accruing points,
levelling up, or earning a badge, players accomplish small, easily achievable short-term goals that
represent progress toward the accomplishment of challenging, distal goals, and show player’s
capability. In workplace context, companies apply points, badges and levels to focus effort on the
achievement of specific performance goals and tie these achievements to immediate rewards. For
example, consulting company Badgeville offers a service with customizable options that companies
can use to configure any type of goal specific to their industry (e.g. completing expense reports,
learning new skills, and sharing knowledge). At IBM, Kudos Badges are earned for achieving
performance metrics established by the company. At Samsung, points earned can be redeemed in a
mobile storefront containing real-world rewards, such as gift cards or donations to a favourite charity.
Other game features include leaderboards (lists of top scorers in the game) and character sheets,
which display the player’s status, skills and past accomplishments. As players progress through the
game, their points are represented on the leaderboard and on their character sheet. Through
leaderboards and character sheets, individual achievements can be immediately and continuously
displayed for the player and others in the game to both see and act upon.

For example, in World of Warcraft (an online role-playing game) players’ avatars visibly evolve as
players acquire new skills. In workplace context, companies use leaderboards in connection with sales
or customer service outcomes. For example, the pharmacy software company, Omnicare, created a
leaderboard for customer service representatives. Character sheets can take the form of dashboards
which show a worker’s profile, with points earned, points to next level, skills acquired, badges earned,
current challenges, and more. Thus, Accenture uses character sheets to display employee expertise
and allow viewers to find suitable experts from anywhere in the organization to tackle a specific
project or problem.
What effects do these foundational game features on work motivation and effectiveness?
Work gamification creates real time access to performance information and improves the visibility,
comparability, and immediacy of this information. Character sheets, leaderboards, point tallies, and
badges earned makes performance feedback readily accessible and salient to workers, allowing them
to continuously “know their score” and have a greater understanding of how they are doing relative
to desired performance standards.
Another motivating mechanism of work gamification is that it allows workers to easily compare and
contrast their attainments with those of others. Social comparison theory suggests that information
about others’ performance compared to one’s own can motivate people to improve their own
performance. At work, a sense of goal progression can often prove elusive, because goals are
frequently too distal for workers to experience goal achievement on a regular basis. Game features
help remedy this problem by making the experience of feedback about goal accomplishment an
almost continuous (daily or even hourly) sensation for workers.
Furthermore, work gamification increases enjoyment by making tasks feel more “play-like”. New
levels, higher scores, movement on the leaderboard, or earning a new badge provide employees with
“small wins”, i.e. a clear and immediate sense of accomplishment. And when people feel a sense of
accomplishment, they experience tasks as more enjoyable.
Finally, work gamification fosters engagement. Reduced to its essence, a game is “a problem-solving
activity approached with a playful attitude”. Because gamification is by definition “play-like,” it makes
tasks more engaging.
1.5 Do employers know what employees need and want?
You may wonder how hard it might be – You just find out what employees want and you try to address
their needs. But of course you also know that it’s easier said than done. And here is an example.
The recruitment consultancy Willis Towers Watson runs two annual surveys: A Global Workforce
Study that measures employee attitudes and a Global Talent Management and Rewards Study that

captures the perspectives of employers. The 2016 Global Workforce Study covered a representative
sample of over 31,000 employees around the globe. And the 2016 Global Talent Management and
Rewards Study captured the perspective of over 2,000 organizations – who collectively employ almost
21 million people worldwide. So we have here a wide range of countries and a high number of
employers and employees.
The first extract from the survey report presents the Top global drivers of attraction – and compares
what employees want and what employers think their employees want. Employees are looking to
work for organizations that offer fair and competitive base pay, opportunities for advancement and
job security. While employers generally understand these priorities, their views diverge from those of
employees in a few key areas.
Top global drivers of attraction (2016)
The second extract compares the drivers of retention – again, comparing what employees want and
what employers think their employees want. And again, we find significant disparities between
employee and employers views
Top global drivers of retention

To address the issues of attraction and retention, as well as the issues of performance, it’s critical for
employers to understand employee expectations and preferences. Employees are looking for
employers to connect with them on a meaningful and personal level similar to how companies connect
with their customers and clients.
How do you find out what employees want? Well, you ask them! And how do you stay up to date with
the shifting needs and preferences of your staff? You ask them more often. Companies across all
industries globally are developing more agile employee listening strategies that go beyond exclusive
reliance on the traditional employee survey. Today, advancements in technology make possible
quarterly, monthly and even daily polls along with always-on tools, such as social media sites.
In the section on job satisfaction and work design, we will introduce another motivation theory, called
the theory of purposeful work behavior.
1.6 Intrinsic and extrinsic motivation
How do jobs satisfy our various needs? In part, work itself can satisfy certain needs, i.e. be intrinsically
motivating. In part, organizations provide incentives, or ‘extrinsic motivators’, such as pay, benefits
and bonuses, which are instrumental to our ability to satisfy the needs. What role do extrinsic and
intrinsic motivators play? We explore this hotly contested issue in this section.
Extrinsically motivated behaviors are those behaviors in which we engage due to the prospect of
instrumental gain or loss (i.e. incentives). In contrast, intrinsically motivated behaviors are those in
which we engage for their own sake (e.g. because we enjoy the task).
Although money is probably the most widely used incentive, incentives include anything provided by
an external agent contingent on performance of particular standards of behavior(s). Thus,
promotions, grades, awards, health benefits, praise and recognition are all incentives. Extrinsic
incentives are motivating only to the extent that an individual believes attaining the incentive is

instrumental toward other things of value, such as food, cars, housing, pleasure and so forth. We know
from experience and research evidence that extrinsic incentives ‘work’.
What is less certain is whether incentives work better (or worse) than intrinsic motivation. Curiously,
although the topic of intrinsic motivation has occupied researchers since the mid-20th century, the
research attention has concentrated on an auxiliary issue, the so-called ‘undermining effect’.
The expression “undermining effect” refers to the idea that the presentation of incentives on an
initially enjoyable task reduces subsequent intrinsic motivation for the task. Basically, it suggests that
incentives erode intrinsic motivation. This idea has generated one of the most heated debates in the
applied psychology (and nine meta-analyses published since 1980s).
The following quotation from a bestselling book “The Puzzle of Motivation” by Dan Pink illustrates the
argument:
“If you want people to perform better, you reward them, right? Bonuses, commissions, their
own reality show. Incentivise them. But that’s not happening here. You’ve got an incentive
designed to sharpen thinking and accelerate creativity, and it does just the opposite. It dulls
thinking and blocks creativity.”
There is a good animation available on YouTube that further expands on this idea:
https://youtu.be/u6XAPnuFjJc
Clearly, there are different opinions about the importance of intrinsic and extrinsic motivation. But
what are the facts? What does research evidence tell us? Let’s look at the results of meta-analysis
conducted by Cerasoli, Nicklin and Ford (2014) and covering 40 years of research and 154 sources,
reporting effect sizes from 183 independent samples and 212,468 respondents.
The meta-analysis addressed three questions:
1. Does intrinsic motivation predict performance?
2. If it does, what is the role of extrinsic incentives?
3. Which matters more to performance: intrinsic motivation or extrinsic incentives?
The answers to these questions are fundamental to our understanding and practice of motivation and
reward. We will, therefore, discuss the findings in more detail in what follows.
1.6.1 Does intrinsic motivation predict performance?

Intrinsic motivation has a significant moderate effect on performance: correlation between intrinsic
motivation and performance is 0.26.
The effect of intrinsic motivation on performance, however, also depends on the type of task. We
distinguish between two types of tasks:
1. Tasks that emphasise performance quantity: these tasks are evaluated on the basis of counting
any discrete units of output (e.g. number of products produced, number of customers served,
number of problems solved or number of errors detected).
2. Tasks that emphasise performance quality: these tasks are evaluated by comparing the output to
a performance standard other than quantity (e.g. creativity).
Tasks that emphasise quality have a stronger link to intrinsic motivation than tasks emphasising
quantity. In particular:
• for tasks emphasising performance quality correlation between intrinsic motivation and
performance is 0.35 (i.e. considerably higher than the overall correlation between intrinsic
motivation and performance).
• for tasks emphasising performance quantity correlation between intrinsic motivation and
performance is 0.26 (i.e. the same as the overall correlation between intrinsic motivation and
performance).
Why is this the case? Tasks emphasising quality tend to have a higher degree of complexity, require
engagement of more skills, and be more autonomous (have lower external control). All these features
are central to intrinsic motivation.
In contrast, tasks emphasising quantity tend to be lower in complexity and require less cognitive
investment. They usually do not require a substantial degree of judgement and autonomy for their
satisfactory production; instead, they are produced primarily by intensely focused, persistent, and
structured behavior. In addition, such tasks are experienced as pressuring toward particular outcomes
and require a high degree of external control, which is typically not conducive to intrinsic motivation
would further erode its importance to performance. So, a link between intrinsic motivation and
performance on quantity-type tasks would be weaker.
1.6.2 How do incentives affect intrinsic motivation?
What happens to intrinsic motivation in the presence of incentives? Do incentives undermine intrinsic
motivation or do they make it stronger? Let’s look at the numbers.

• When performance is incentivised (by whatever incentive), the correlation between intrinsic
motivation and performance is 0.36
• Without incentives, the correlation is 0.27
So, we can conclude that incentives increase rather than undermine intrinsic motivation.
There is, however, an additional factor to consider, namely, the salience of incentives. There are two
types of incentives:
1. Directly salient incentives. These incentives provide a clear, proximal, unambiguous link between
the incentive and performance. For example, sales commissions clearly predicate receipt of the
incentive upon specific level of performance.
2. Indirectly salient incentives. These incentives are also tied to performance, but the link is weak,
less clear or less direct. For example, a base salary is an indirectly salient incentive, because it is
distally related to performance, i.e. it is difficult to expect measurable gains in base salary from
immediate improvements in performance.
When performance is incentivised, the relationship between intrinsic motivation and performance:
• for directly salient incentives is 0.30

• for indirectly salient incentives is 0.45.
What does this mean? This means that indirectly salient incentives strengthen the link between
intrinsic motivation and performance, while directly salient incentives do not.
1.6.3 What matters more: incentives or intrinsic motivation?
Our final question is: Which matters more – extrinsic or intrinsic motivation? Cerasoli et al. (2014)
results provide an illuminating (and some would say unexpected) answer: the relative importance of
intrinsic motivation is identical to that of extrinsic motivation. So both matter equally. There is,
however, a caveat:
• For performance quantity, extrinsic incentives are a better predictor than intrinsic motivation
• For performance quality, intrinsic motivation is a better predictor than extrinsic incentives.
How much do extrinsic incentives and intrinsic motivation matter altogether? Combining intrinsic
motivation and extrinsic motivation explains 12%–18% of the variance in performance, which is a
considerable amount.

1.6.4 Intrinsic versus extrinsic motivation: practical implications
Organizations should take a balanced approach to any motivational intervention. Not only do both
intrinsic and extrinsic motives matter, they interact with one another.
The question, then, is not whether to help people find their tasks intrinsically rewarding or whether
to provide extrinsic incentives. Instead, the first question you have to ask is what kind of behavior you
want to encourage.
When tasks are straightforward, highly repetitive, and/or not inherently enjoyable, they should be
more closely linked to extrinsic incentives. For example, research shows that linking pay to
performance improves productivity on relatively straightforward tasks, such as tree planting, glass
installation and even horse jockeying.
On the other hand, when tasks are complex, require a great deal of absorption and personal
investment, and focus on quality, they should be less linked to incentives and more linked to intrinsic
motivation. For example, teachers who are paid based on their students’ performance do not do
better and doctors who are paid based on patient outcomes do not have healthier patients.
Why is this the case? A more directly salient incentive narrows cognitive focus, strongly encourages
behavior X, and intensifies behavior toward a goal. (‘For each X I do, it is very clear what incentive I
will receive and when”.) This may be desirable when the task is simple, the stakes are high,
productivity is the sole concern, or compliance is tantamount to performance and safety.
However, as incentives become larger and more directly salient, teamwork and creativity will suffer,
intrinsic motivation will be crowded out, and unethical or counterproductive behaviors will become
more likely. When creativity, autonomy, teamwork, learning, ethical behavior, well-being and quality

are valued, incentives should be framed as less salient. (“I should do well on each X I do, because the
incentive is not tied to a single X”.)
1.7 Next Steps
In the following sections, we will take a closer look at how organizations and managers can, and do,
attend to both intrinsic and extrinsic motives. In particular, in the section on reward management, we
will consider extrinsic motivation; and in the section on job satisfaction and word design, we will
further explore intrinsic motivation.
1.8 TAKEAWAYS
1. Motivation is a basic psychological process that affects the direction, intensity and persistence of
action. Motivation process consists of three interacting elements: needs, drives, and incentives.
2. Maslow’s hierarchy of needs theory identifies five essential human needs that underpin
motivation: physiological, safety and security, love and belongingness, esteem, and self-
actualisation. It also suggests that only unsatisfied needs motivate action. The implications from
Maslow’s theory are two-fold: when trying to motivate people we must (1) assess, understand
and attend to their needs and (2 attend not only to “lower-level” needs but also to the self-
actualisation needs.
3. Self-determination theory identifies three psychological needs underlying work motivation: the
need to feel competent, the need to feel autonomous and the need for relatedness. Satisfaction
of these needs promotes physical and mental health and psychological growth; frustration of
these needs leads to dysfunction and illness. This theory suggests that organizations should
develop the work environment that fosters (a) competency to master a skill and achieve a
successful outcome; (b) autonomy to choose the best method of working; and (c) relatedness to
connect with and interact with others.
4. Work / employment can help satisfy employee needs in a variety of ways. On one hand, incentives
that organizations provide, such as pay, benefits and bonuses, serve as the means to
purchase/obtain goods and services that satisfy particular needs. On the other hand, work itself
can satisfy certain needs. Extrinsically motivated behaviors are those behaviors in which people
engage due to the prospect of instrumental gain or loss (i.e. incentives). In contrast, intrinsically
motivated behaviors are those in which people engage for their own sake (e.g. because they enjoy
the task).

5. In broad terms, extrinsic and intrinsic motivation matter equally in terms of their impact on job
performance, though for performance quantity, extrinsic motivation (incentives) are a better
predictor, while for performance quality, intrinsic motivation is a better predictor.
Note: Please remember also to review Takeaways provided in the textbook Chapter 6.
1.9 Answers
Questions on extrinsic and intrinsic motivation
• Does intrinsic motivation predict performance? Yes, particularly on the tasks that emphasise
quality (rather than quantity).
• Do incentives affect intrinsic motivation? Yes. Incentives (particularly indirectly salient
incentives) strengthen intrinsic motivation.
• Which matters more to performance: intrinsic motivation or extrinsic incentives? Both matter
equally overall. For quantity, incentives matter more; for quality, intrinsic motivation matters
more.
Section 2: Reward management
After completing this section you will be able to:
• describe the key elements of a reward management system

• identify advantages and disadvantages of particular pay-for-performance programmes and
practical challenges in implementing these programmes
• appreciate the role of justice in reward management and diagnose problems stemming from
the violations of distributive and procedural justice principles
• explain the role of non-material rewards and use various forms of recognition to motivate
people.
2.2 Linked readings
Organizational Behavior, Chapter 6 Motivation, sections “Equity Theory” and “Application:

Compensation Systems”

2.3 Defining reward management
In the term “reward management”, reward refers to the recognition of contributions or achievements
of individuals or groups by a financial payment or some form of non-financial recognition.
(In the United States, the term ‘compensation’ or ‘compensation and benefits’ is commonly used,
rather than ‘rewards’.)
Reward management is the process of ensuring that people are rewarded fairly for their work and
their contribution to the achievement of organizational goals.
Reward management provides answers to two fundamental questions (Armstrong, 2015: 6) :
1. What do we value? (or How do we value people?)
2. What are we prepared to pay for? (or How do we reward them according to their value?)
Reward management deals with the strategies, policies and processes required to ensure that the
value of people and the contribution they make to achieving group and organizational goals is
recognised and rewarded. It is about the design, implementation and maintenance of reward systems,
which aim to satisfy the needs of both the organization and its stakeholders and to operate fairly,
equitably and consistently. Reward management is not just about pay and employee benefits. It is
equally concerned with non-financial rewards such as recognition and learning and development
opportunities.
Reward management is a strategic process and a key element of strategic HRM, as it has the power,
if orchestrated appropriately, to leverage employee effort and align performance to organizational
goals. Reward management has the following aims (Armstrong, 2015):
1. Support the achievement of business goals by developing a performance culture and stimulating
high performance.
2. Define what is important in terms of behaviors and outcomes.
3. Align reward practices with employee needs.
4. Reward people according to the value they create.
5. Attract and retain the high-quality people the organization needs.

6. Motivate and win the engagement of employees.
7. Add value through the introduction of effective, yet affordable reward practices.
2.4 Reward philosophy, strategy and system
Reward philosophy is a set of values and beliefs that influence reward strategy and the design and
operation of the reward system.
All organizations have a reward philosophy, even if they do not articulate it. Some organizations
formally define their reward philosophy and set it out in the form of guiding principles. In other
organizations reward philosophy is not officially stated, but is implicit. It may be just a crude
understanding of what is “done”, such as offering competitive rates of pay or paying for performance.
Reward philosophies are concerned with the ways in which people are paid, the levels of payment,
the extent to which pay should be related to performance, the scale of employee benefits and the
adoption of total reward policies, which provide for both financial and non-financial rewards. They
also cover the degree to which reward practices are ethical: fair, equitable and transparent.
Reward strategy flows from an analysis of the business drivers. The drivers are unique to any
organization but will often include profitability, productivity, innovation, customer service, quality,
and the need to satisfy the stakeholders. The question it addresses is: ‘How can rewards support the
business drivers in order to achieve the organizational goals?’ The reward strategy defines longer-
term intentions in pay structures, contingent pay, employee benefits, and ways increase employee
engagement and commitment. The strategy is influenced by the reward philosophy of the
organization and by the organizational context - organizational culture, structure, operations and size
and the external environment.
Guiding principles governing an organization’s approach to reward management might, for example,
include:
• recognising the value of all staff contributions, not just those of the highest performers;
• being transparent; recognising and reflecting different work groups;
• reflecting the geographical or functional market in which an employee is based; and
• comparing favourably with competitors.
Logically, organizations should seek to ensure that the reward strategy aligns with the organization’s
values and beliefs and is consequently directed to support the achievement of wider corporate
objectives.
Reward strategies signal what the organization considers important and what it clearly does not value.
For example, reward strategies that rest on service-related salary increments are likely to convey

messages that the organization values loyalty and long tenure above all else, whereas the use of
competence-related pay would suggest a need for employees to develop and demonstrate both core
and job specific competencies.
A reward system consists of the interrelated processes and practices which ensure that reward
management aligns with reward strategy and is carried out effectively for the benefit of the
organization and its employees. Reward system includes: (1) remuneration, including: base pay,
contingent pay, and employee benefits and (2) non-financial rewards. We describe this in detail below.
2.5 Reward system
2.5.1 Total rewards
Total rewards are the combination of financial and non-financial rewards available to employees.
The following diagram provides an overview of the total reward system.
Total reward system

Total rewards include:
1. Non-financial rewards, encompassing formal recognition programmes, informal recognition, and

training and development opportunities.
2. Financial rewards, or total remuneration, that consist of:
• Base pay is the rate for the job, or the amount of money that an individual is paid on an
hourly, weekly, monthly or annual basis. Its management involves deciding on pay levels
and developing and operating grade and pay structures. Base pay is often determined by
market conditions.
• Contingent rewards consist of payments which are related to performance, competency,
contribution, skill or length of service. They provide for pay progression by being added
to base pay.
• Skill-based pay aims to encourage and reward the acquisition of additional skills and
is added to the base rate for the job.

• Service related pay refers to pay progression provided by fixed increments on a pay
scale related to time in the job.
• Pay-for-performance schemes may be:
• Individual-based (individual pay for performance, e.g., sales commissions and
bonuses) or group based (group pay-forperformance, including gain-sharing,
profit sharing, and employee stock ownership plan.
• based on performance results or on behaviors (merit pay, such as competency-
based pay).
• Allowances are paid in addition to basic pay for special circumstances or features of
employment. The main types are location allowances, overtime payments, shift
payments, working conditions allowances, stand-by or callout allowances (made to those
who have to be available to come in to work when required).
• Employee benefits may include pension, sick pay, insurance cover, company cars, and
other perks; plus provisions that are not strictly remuneration, such as annual holidays.
‘Flexible’ benefit schemes allow employees to decide on the make-up of their benefits
package within certain limits.
2.5.2 Reward system design choices
To devise a reward system a number of key choices must be made. Marchington et al. (2016) suggest
that there are five essential reward design choices:
1. what to pay for: job size, time served (seniority), performance, skills/ qualifications or some other
person-centred attribute or behavior;
2. what position to adopt in the market – at or close to the median pay levels in the market, within
the upper quartile or the lower quartile;
3. whether to place primary focus on internal equity when determining pay or be more concerned
with external benchmarks;
4. whether to operate a centralised or decentralised approach to reward or a hybrid with some

central control and a degree of localised latitude;
5. the precise nature of the reward ‘mix’.
Each of these reward decisions cascades into a range of further ancillary choices, thus creating the
potential for multiple models of reward practice. Because of this, it is difficult to generalise about
approaches to reward and impossible to be prescriptive. A useful standpoint to start with is ‘What
makes sense for this organization?’, taking into account the relevant evidence relating to the internal
and external factors influencing choice

2.5.3 Factors affecting reward structure
An organizational approach to reward will be shaped by both external environmental and internal
organizational factors (Beardwell and Thompson, 2017).
Environmental factors
The economic environment is an important determinant of pay levels and a barometer for future
trends. In setting pay levels, employers cannot help but be influenced by the market rates for jobs.
Organizations cannot survive if they fail to pay competitive labour market rates to attract employees
with the skills needed to provide a service or manufacture a product. Of course, there is no such thing
as a single market rate for a job; rather, there are several rates or a zone of discretion, the spread of
which is influenced by the supply of and demand for labour, the relative bargaining power of
employees, geographical factors and the actions of employers competing for labour. In tight labour
markets, where competition for resources is intensive and supply is low, market rates are driven
higher, affecting the price employers have to pay to attract adequate resources. Economic activity
rates and unemployment indicators are thus key factors influencing pay levels. In addition, for most
organizations, the rate of growth in the economy is a critical benchmark for the salary review process
and impacts upon organizations’ ability to pay. According to the CIPD Reward Management Survey
2014–15, the top three factors influencing the pay reviews are: the organization’s ability to pay, the
‘going rate’ of competitors’ pay rises, and recruitment and retention concerns. The data suggest that
employers are struggling to maintain the equilibrium between monetary affordability on the one hand
and the need to attract and retain vital resources on the other.
The legal environment is another key determinant as it constraints the reward practices. In the UK, for
instance, statutory regulation of rewards has been in place for some 30 years, starting with the
legislation to ensure pay equity in gender term and more recently progressing to the regulations on
pay at the lower extreme of the labour market, minimum holiday entitlement and a restraint on
working hours. The relevant legislation includes the Equality Act 2010, the National Minimum Wage
Regulations 1999, the introduction of the National Living Wage in April 2016 and the Working Time
Directive 1998.
Organizational factors
The nature of the business, the size of operation, organizational structure and culture, types of
employee, jobs and technology, management and ownership, also influence the design of rewards.
For instance, in setting levels of pay, private sector organizations tend to place greater emphasis on
comparability with the external market, while public sector organizations focus on internal equity and
more extensively use tools such as job evaluation and the equal pay review process.

2.6 Financial rewards
2.6.1 Pay structure and pay progression
According to the CIPD (2018b), a pay structure is a collection of wage grades, levels or bands that link
related jobs within a hierarchy or series, providing a framework to implement reward strategies and
policies.
Pay structures are usually designed to:
• align the reward strategy with the business strategy by encouraging required behaviors and
performance
• bring order and clarity in managing pay rises and career development
• help ensure fairness and lawfulness, for example by avoiding gender pay discrimination.
Smaller organizations can manage without a formal pay structure, but from around 200 employees,
such arrangements typically become essential as a reward management framework.
As a rule, pay structures need to be flexible enough to accommodate change in the organization or in
the external market and be sufficiently clear for individuals to understand where in the structure they
are placed and how pay progression is achieved.
In turn, pay progression is where an individual reaches higher pay levels within a grade. It’s often
regarded as the measure of ‘real’ wage growth. It’s distinct from salary rises linked to inflation or wage
increases associated with a formal promotion to a higher band.
Organizations use pay progression to:
• support business strategy by encouraging and rewarding desired employee behaviors

• maintain salary competitiveness while controlling payroll costs within set parameters
(including affordability)
• provide a fair and transparent process by which individual wage increases are determined.
Progression is usually determined by:
• the width of each pay band – the degree of pay level variation within each band.
• the number of pay grades within the overall pay structure.
2.6.2 Types of pay structure

Unstructured / less structured arrangements
Individual pay rates, spot rates, spot salaries refer to set rates of base pay that are not tied to a scale
or range. There is a single hourly, weekly or annual pay rate for each job or person. Where there is a
spot rate for a job, all employees incumbent in the role are paid the same base rate for the job. This
may be supplemented by forms of variable pay, such as overtime and shift premium or attendance
bonus. Spot rates tend to preside in manufacturing and warehouse/distribution centres and in other
lower-skilled occupations, and they are also relatively common in small firms. On the other hand, they
are also found at senior levels where the remuneration package may need to be designed to attract,
retain and motivate a specific individual. Spot rates do not readily offer scope for pay progression;
rather, they supply a series of detached job rates. Such an approach may be eminently suitable where
jobs are fairly static in nature, and career development opportunities and expectations are limited.
Still, there may be scope for moving to a higher spot rate or for spot rates to be increased, to keep
pace with inflation and/or market rates.
Individual pay ranges, individual job ranges, individual salary ranges are a more sophisticated version
of spot rates or salaries. Instead of a single rate for the job, a pay range is attached to each job or
employee. Individual salary ranges may be preferable to individual pay rates as they allow some
formal scope for pay progression.
Formal pay structures
Formal pay structures are usually defined by a pay spine, a pay grading and a grouping of jobs into job
or career families.
A pay spine is a series of fixed incremental salary points reflecting all jobs, from the highest paid
through to the lowest paid, incorporated in the structure. Incremental points may increase at an
evenly distributed rate throughout the spine; for example, each increment might be set at 2.5 per
cent above the next, from the bottom to the top of the structure. Alternatively, increments might be
wider at higher levels in the organization. Pay spines are traditionally found in local government or
voluntary organizations that mirror local government arrangements. In these work environments, pay
grades are superimposed upon the pay spine to form a structure in which a series of increments
applies within each grade. Employees’ annual salaries are typically automatically raised to the next
incremental point on the basis of length of service. This occurs either on an individual basis, triggered
by the anniversary of the employee joining the organization, or collectively at a fixed date in the
calendar. Except in extreme cases of poor performance, where an increment might be withheld or
where progression ‘gateways’ have to be crossed, employees continue to receive automatic annual
increments (and possibly accelerated increments awarded according to performance criteria) until
such time as they reach the top point in the grade. Pay progression thereafter, in the form of
increments, is contingent on the employee gaining promotion to a higher grade. In some
organizations, further additional discretionary points may be available beyond the upper limit of the

grade boundary, reserved for those employees who have performed exceptionally throughout the
year or those who have made a special contribution (Beardwell and Thompson, 2017).
Aside from the use of a central pay spine, organizations opting for a formal pay structure are likely to
use some form of grading. The general principles of a pay grading structure are that jobs are grouped
together into grades or bands, often according to some measure of job size. Graded structures require
firms to determine how many grades or bands to build into the structure, the width of each grade
(‘bandwidth’), the degree of overlap to configure between grades and the size of grade differentials
to apply throughout the structure. Types of pay structure are often differentiated on the basis of
bandwidth from narrow grades to broad bands:
• A narrow-graded pay structure comprises of a large number of grades, usually ten or more,
with jobs of broadly equivalent worth slotted into each grade. Progression usually comes in
increments linked to service length. Because grades are narrow, most employees reach the
top of the pay range for their grade fairly quickly, potentially leading to demands for upgrading
and grade drift (jobs being ranked more highly than justified). As the name would suggest, the
width of each grade within the structure is narrow, perhaps amounting to a range where the
upper salary limit of the grade is anywhere between 20 and 40 per cent higher than the lower
salary limit. Salary differentials between pay ranges (the amount by which the mid-point of a
grade range is higher than the mid-point in the grade below) are likely to be somewhere
between 5 and 15 percent but can be as high as 25 per cent. There is usually an overlap
between ranges, the purpose of which is to provide the employer with the scope to recognise
and reward a highly experienced and/or qualified employee at the top of a grade more
generously than someone who is still in the learning zone of the next higher grade (Armstrong,
2015: 181).
• A broad-graded pay structure typically has between six and nine grades. Such structure can
help counter ‘grade drift’ as there’s greater scope for individual employees to progress further
along a pay grade, without the need for regrading.
• Broad-banding uses a small number of pay bands, typically four or five. The broader salary
range attached to bands in the structure gives employers greater flexibility than is possible in
a narrow-graded structure and is arguably more suitable for use in flatter organizations where
employee development and career progression are not inextricably linked to vertical
movement through the hierarchy. Flatter organizations tend to develop a more flexible
outlook as far as careers are concerned, promoting lateral career development and ‘zigzag’
careers. While narrow grades might inhibit such moves, broad bands allow employers to
recognise and reward non-vertical career movement and role growth. Broad-banded pay
structures also afford employers greater latitude in establishing starting salaries and so the
opportunity to pay more to attract suitably qualified and experienced staff to ‘hard to fill’
positions (Beardwell and Thompson, 2017).
Finally, pay structures can be characterised wholly or partially by the use of job family or career family
structures.

• A job family structure consists of separate grade or pay structures for a series of jobs which
are related by virtue of the activities carried out and the basic skills used. The jobs, though,
will be differentiated by the level of responsibility, skill or competence required. Usually
around six to eight levels are represented within a family structure ranging from lower-ranking
jobs through to higherranking posts.
• Career families or career-grade structures involve the use of a common pay structure across
all job families, rather than operating separate pay structures for each family. These
arrangements reflect an emphasis on career paths and progression as opposed to the greater
pay focus of the job families approach.
Additionally, there may be local pay structures, where differences in the cost of living and relative
tightness of local labour markets may require introducing local variation in pay. For instance, in the
UK some companies offer a pay “top up” for jobs located in London due to the higher cost of living
there.
2.6.3 Pay progression arrangements
There is also a variety of pay progression arrangements, including:
• Length of service, whereby an individual progresses through a number of incremental pay

points with each year of service in the organization (usually up to a maximum point that’s
reached after a certain number of years). This rewards the build-up of expertise in the job and
help with employee retention. However, it may discriminate indirectly against women as they
are more likely to take time out of the labour market to meet family responsibilities.
• Age-related increments. In the UK, these are considered “outdated”, but legal exceptions
remain in place in respect of the UK National Minimum Wage and Living Wage legislation. The
minimum rates are lower for young workers to help them attain their first steps on the
employment ladder before progressing to higher levels of pay as they gain in age.
• Individual performance-related pay links pay rises with an assessment of an individual
employee’s performance by their manager. The idea is to encourage staff to perform to the
highest level possible.
• Team performance related pay involves linking pay increases to an assessment of team
performance and aims to encourage particular types of behavior, such as collaborative
working.
• Organizational performance related pay can also be used as a criterion for pay progression
(for instance, by taking divisional sales levels into account).
• Competency pay bases pay rises on an assessment of employee competencies in a range of
areas (focusing on the worker’s input to the job, rather than achievement), for example
customer service or communication skills. Find out more in our competence and competency
frameworks factsheet.

• Skills-based pay links pay rises to the acquisition of additional skills or specific qualifications
levels, in order to encourage employees to undertake appropriate study or training.
• Market rates are used to keep pace with rates for similar jobs or regional pay levels in the
external labour market
• Inflation-linked pay rises may involve simply increasing pay rates for every employee by a
percentage broadly in line with inflation. As employers seek to link pay with performance,
inflation-based rises are rare and largely confined to unionised environments and/or relatively
low-skilled or homogeneous occupational groups. Where pay arrangements are more
complex, such an adjustment may be made across the structure each year. But this often takes
the form of an inflation-based increase to pay levels or grade ranges across a particular pay
structure (sometimes excluding certain levels or minimum rates, for example to freeze pay for
poor performers), rather than giving each individual within that structure an identical pay rise.
For instance, the pay increase may be linked to performance and position in the salary range
with those below the median getting more than those above it.
2.6.4 Market pricing and job evaluation
One of the most important decisions in designing a reward system concern the mechanisms that are
used to determine the basic rate of pay for different jobs in the organization. There are three principal
mechanisms for determining base pay:
1. Market pricing, whereby pay is set based on external market comparisons with the pay rates for
similar jobs in other organizations. The aim is to set the organization’s own pay rates at an
appropriate level to recruit and retain the staff it needs. Although the concept of a market rate
for a job is common, there’s no such thing as an accurate single rate of pay for a job or role, and
rates may vary within the same occupation and in the same location. It’s important for employers
to consider how to interpret the data collected and where the organization wants to position its
salary and total remuneration levels in relation to the market.
2. Job evaluation, defined as a method of determining on a systematic basis the relative importance
of a number of different jobs’. It can be a useful because job titles can be misleading, either unclear
or unspecific, and in large organizations it’s impossible for HR staff to know each job in detail. Job
evaluation is typically used when determining pay and grading structures, ensuring a fair and equal
pay system, and/or comparing pay rates against the internal or external job market.
3. Collective bargaining, which involves determining pay rates through collective negotiations with
trade unions or other employee representatives. In the UK for the most part of the 20th century
this was the dominant method used for determining pay, with negotiations commonly occurring
at industry level. Recent decades have seen a steady erosion of these arrangements, with
collective bargaining decentralised to company level, if it survives at all. The rise of service sector
organizations with lower union membership levels has contributed to the erosion of collective

bargaining. However, in Eastern Europe and Scandinavia, collective bargaining remains a major
determinant of pay rates (Torrington et al., 2017: 513).
These mechanisms are not incompatible. Thus, job evaluation can be used as a way of matching jobs
to enable market pricing. However, there are tensions between job evaluation and market pricing
approaches. Job evaluation has an internal focus as it ranks jobs and their relative importance within
an organization, whereas market pricing has an external focus as it aims to compare organization pay
rates with those in the wider labour market. Employers need to resolve such tensions if they wish to
ensure that pay rates remain both internally equitable and externally competitive. For example, where
a particular job commands higher earnings in the external market than justified by an internal job
evaluation exercise, one approach is to use temporary market supplements to top up earnings for that
role (Chartered Institute of Personnel and Development, 2018a).
Market pricing
Market pricing exercises involve the use of some form of job matching to enable pay rates in the
organization to be compared with equivalent jobs in other employers. A range of options for
comparing jobs exists from basic analysis using job titles through to job evaluation schemes.
Employers must also decide what type of reward they wish to compare, for example, basic salary, total
earnings (including bonuses, and so on) or the wider package (including such elements as pension
provision).
Market pricing also entails gathering of appropriate pay and benefits data. Sources of pay data can
vary from specifically collected survey information to more general commercial data. Market pricing
exercises may assume that comparable pay data exists that is easily obtainable and accurate. This is
not always the case: some jobs are so specialised that few, or even no, external comparators exist and
assumptions have to be made about ‘comparable’ job content, which may compromise data accuracy.
Because employees have varying skills, attributes and abilities, and employers themselves vary in
terms of their cultures, performance and ability to pay, there is often a range of pay rates in the
market, even for the same jobs. Therefore, HR has to help its organization decide where it wants to
position itself in the labour market to achieve its business and staffing objectives. For example, pay
policies might be positioned to pay at the median level for the sector, occupation or locality. Others
might use market data to feed into reference points in pay ranges, with rates for individual employees
set according to factors such as performance - see our performance-related pay factsheet for more.
There’s very little published information on organizations’ market pricing practices. In general, private
sector companies tend to benchmark against their own industries, and against companies of similar
size (internationally as necessary) (Chartered Institute of Personnel and Development, 2018a).
Job evaluation

There are two main types of job evaluation: (1) analytical schemes, where jobs are broken down into
their core components, and (2) non-analytical schemes, where jobs are viewed as a whole.
Analytical schemes offer greater objectivity in assessment as the jobs are broken down in detail.
Examples of analytical schemes include:
• ‘Points rating’ approach. In this approach, the key elements of each job, which are known as
‘factors’, are identified by the organization and then broken down into components which
may also be weighted. Each factor is assessed separately and points allocated according to
the level needed for the job. The more demanding the job, the higher the points value.
Examples of factors commonly assessed include: knowledge and skills, people management,
communication and networking, decision-making, working environment, impact and
influence, and financial responsibility.
• ‘Factor comparison’ approach. This approach is also based on an assessment of factors,
though no points are allocated. Use of this method is less widespread than ‘points rating’
systems as the latter approach enables a large number of jobs to be ranked at the time.
The use of analytical schemes is more popular because of the capacity to help provide a defence
against equal pay claims.
Non-analytical schemes are less objective than analytical schemes, but are often simpler and cheaper.
Methods include:
• job ranking, which puts jobs in an organization in order of their importance, or the level of
difficulty involved in performing them or their value to the organization.
• paired comparisons, which compares each job in turn with another in an organization. This
takes longer than job ranking as each job is considered separately.
• job classification, or job grading. Before classification, an agreed number of grades are
determined, usually between four and eight, based on tasks performed, skills, competencies,
experience, initiative and responsibility. Clear distinctions are made between grades. The jobs
in the organization are then allocated to the pre-determined grades.
Whether adopting an analytical or a non-analytical approach, organizations have three main options
over scheme design and development: a scheme may be developed in-house; a consultancy’s off-the-
shelf package may be purchased; a consultancy may tailor its package to suit the organization’s needs.
The system selected will depend on the size of the organization and the aim of the job evaluation
exercise. The Korn Ferry Hay Group Guide Chart–Profile method is the most widely used scheme, but
other large consultancies, such as Aon Hewitt, Mercer, PricewaterhouseCoopers, SHL, and Willis
Towers Watson also offer off-the-shelf or tailor-made schemes.
Job evaluation is a complex and time-consuming task and many organizations draw on the expertise
of external organizations to help. Note that the process is often as important as the results; and

effective communications are essential, as employees may have concerns over their future job grading
and pay (Chartered Institute of Personnel and Development, 2018a).
2.7 In focus: pay for performance
Pay for performance (often abbreviated as PFP) is a type of contingent rewards. Pay for performance
is of a particular interest for managers for two reasons. Firstly, organizations have more discretion in
this area of reward management than they do, say, in pay level, which is more constrained by labour
market parameters. Secondly, when PFP works, it seems capable of producing spectacularly good
results and when it does not work, it can produce spectacularly bad results.
How does pay for performance affect performance? There are two mechanisms (Gerhart and Fang,
2014):
• Firstly, pay is an incentive and it affects the intensity of motivation for individuals and groups.
This is called, unsurprisingly, the “incentive effect”.
• Secondly, different pay systems attract and retain different types of individuals. These
individuals may vary on the basis of ability, responsiveness to PFP, risk seeking and other
attributes that may affect their performance. So, in this case, pay affects performance by
“sorting” individuals with different KSAOs into particular jobs and organizations. This is called
the “sorting effect”.
There are several types of pay for performance, depending on the type of performance rewarded and
the level at which performance is measured (Gerhart et al., 2009):
Types of pay for performance
2.7.1 Pay for performance plans: strengths and shortcomings

Every pay programme has its advantages and disadvantages.
• Individual-based plans are likely to fit better where work is independent and competition
between individuals is encouraged. They work less well where there is interdependence and
a greater need for cooperation.
• Group and organization-based plans would seem to provide the solution in the latter case.
However, such plans have potentially weaker incentive effects.
What is the research evidence? According to the latest meta-analysis (Garbers and Konradt, 2014)
covering 146 studies and 31,681 participants, the effect of individual incentives on performance was
“moderate” (0.32), while the effect of team-based incentives was large (0.45). Surprisingly, the effect
of individual incentives for performance quality was larger (0.39) than for performance quantity
(0.28). For team-based incentives, rewards distributed equitably resulted in higher performance than
rewards distributed equally between team members.
(By the way, why do we put such emphasis on the results of meta-analyses? Because these give us the
“best available” evidence. They summate across the peculiarities and idiosyncrasies of individual
studies and give us an indication of the sign and magnitude of the association, in general.)
Similarly:
• Results-based plans can achieve strong incentive intensity, but a compensating differential for
the increased risk borne by workers is likely to make such plans more costly, unless expected
performance improvements actually materialise. Also, objectives not explicitly included in the
plan may be ignored.
• Behavior-based plans can be better on these dimensions, but it is typically more difficult to
achieve strong incentive intensity without objective performance measures.
Research and practice in the area of PFP requires one to deal with a number of trade-offs and
conundrums. Thus, strengthening PFP links can generate powerful motivation effects, but sometimes
these are in unanticipated and undesirable directions. Sometimes, the problem is that PFP motivates
“too well”, but in the wrong direction. Examples include mis-coding health conditions in hospitals to
get higher government reimbursement rates and auto repair shops finding (nonexistent) mechanical
problems so they could sell more repairs. In both cases, the incentive plans were designed to reward
employees for driving revenue. Both plans accomplished that, but employees used unacceptable
means to do so. (We return to this problem shortly.)
Similarly, the relative emphasis given to results-based and behavior-based measures of performance
may contribute to too much or too little focus on certain performance objectives. In like fashion, the
relative emphasis given to individual and group/organization performance in PFP plans may be
beneficial for some objectives, but detrimental to others. What all this means is that, as in other areas

of management, “one best way” advice (e.g., do or do not use individual PFP plans) or “sound-bite”
conclusions (e.g., pay does or does not motivate) do not work.
Because of the limitations of any single pay programme, organizations often elect to use a portfolio
of programs (e.g. merit pay combined with profit-sharing) that focus on different objectives, which
may provide a means of hedging the risks of particular pay strategies while still achieving most of the
hoped-for benefits).
Of course, hybrid plans are not always superior, especially to the degree that there are mixed or
conflicting messages and the relative size of incentives tied to different performance objectives is not
consistent with the stated priorities.
Finally, any discussion of whether PFP “works” must, to be practically useful, provide some sort of
cost–benefit or ROI analysis. For almost any job, there will likely come a point where increasing
incentive intensity (PFP) will change behavior. Whether it is worthwhile to do so depends on what the
value of the change in behavior is and what it costs to achieve it. Cost includes not only the higher
cost of compensation, but also potential unintended consequences such as the use of undesirable
means to achieve the ends and lessened attention to objectives not emphasized in the PFP plan. Such
a “devil is in the details” approach is, of course, not as straightforward as saying that PFP either works
or does not work, but it is more realistic and thus necessary for effective decision making (Gerhart et
al., 2009).
2.7.2 Pay for performance: causes of failure
Performance-based financial incentives can be very effective, but in practice ineffective incentive
systems abound. Why does it happen? In a recent article, two pre-eminent academic experts on
financial incentives, Shaw and Gupta (2015) provide several reasons:
Incomplete measures. Incomplete measures occur partly because of a ‘fascination with the objective
criterion’. For many jobs, objective measures are simply not available for all critical aspects of the job,
and organizations end up focusing on the partial set for which objective measures are available.
Employees then attend only to the measured aspects, ignoring the remaining significant job duties.
For example, in the Atlanta Public School Cheating Scandal, the incentive system focused exclusively
on standardised test scores; and so teachers and administrators in the school district took legitimate
and illegitimate steps to increase standardised test scores. Similarly, the Pacific Gas and Electric
Company offered bonuses to supervisors whose crews found fewer leaks and kept repair costs down.
Bonuses for finding fewer leaks encouraged crews to ignore safety threats; and as a result, in 2010, a
blast killed eight people and destroyed 38 homes. In an Asian city bus drivers were paid bonuses based
on whether they reached their destination on time. Consequently, during peak traffic time buses
would drive past bus stops without stopping to collect the passengers, so as to avoid being late. The
incomplete incentive system encouraged drivers not to pick up passengers during rush hour, when
the most fares (revenue for the organization) would be paid. The problem in these cases is in design,

not in the use of incentives. Often, because complete objective measures are difficult to obtain easily,
we settle for proxies that are easily at hand. But careful thought could produce an almost complete
list of objective measures.
Subjective measures. Still, the fact remains that complete objective measures may not always be
available. As an alternative, organizations often use subjective performance appraisals by supervisors.
Such merit systems, based on supervisory performance ratings, are arguably the most common basis
for financial incentives. But supervisory ratings of performance are notoriously inaccurate. Hoffman
et al. (2010) demonstrated that idiosyncratic rater source effects accounted for 55 per cent of variance
in multisource performance appraisals, whereas performance dimensions accounted for 10 per cent
of the variance. Unless the performance appraisal system is thoroughly examined for validity, tying
financial incentives to supervisory ratings is likely to lead to undesired behaviors such as impression
management and politics.
Uninfluenceable measures. An example of this is the U.S. Veterans Health Administration Scandal of
2014. Healthcare workers’ rewards were tied to wait times for patient appointments, but no
additional resources were provided to make shortening wait times feasible, and the caseloads
increased dramatically due to the Iraq and Afghanistan wars. Because already overworked workers
had no legitimate way to influence the measure (wait times), they resorted to fudged data. Again, the
incentive system worked, but bad design (uninfluenceable performance outcomes) led to substantial
problems.
The size of incentives. In terms of incentive size, research shows that performance based pay raises
must be large enough (about 7 per cent) to have meaningful effects Often, pay raises do not meet this
threshold and are thus unlikely to have the desired effects.
The simultaneous use of multiple incentives. Sometimes organizations use more than one incentive
system, and these incentives work at cross purposes. At a Hewlett-Packard plant the system was
designed to have a team pay-for-performance component and an individual skill-based pay
component that encouraged learning new skills. The training necessitated by skill-based pay plans
implies that, for at least a modicum of time, employees will have sub-par performance. Implementing
a team-performance-based pay plan concurrently militates against employees in training mode.
Indeed, many employees were resentful of the need for training, and ultimately the team pay-for-
performance plan overwhelmed the skill-based pay plan. In other words, the plan failed not due to
the use of team incentives or the use of skill-based pay plans, but because the two were used
simultaneously and promoted conflicting behaviors.
2.8 Benefits
Benefits and development opportunities have consistently been found to have a larger effect on
employee turnover than money. These may include:

• various health benefits and insurance;
• retirement benefits;
• paid time off – from holidays and sick leaves to sabbaticals;
• workplace flexibility, such as teleworking or compressed work weeks;
• wellness benefits – from onsite nurse, massage or fitness facilities to healthy food cafeteria;
• learning and training opportunities, such as tuition reimbursement, on the job training,
coaching and mentoring;
• career development opportunities such as overseas assignments –
and many others: from company cars to childcare subsidies, and from financial education services to
community volunteer programs.
What is the research evidence on relative importance of pay, benefits and work characteristics? Highly
instructive evidence comes from the meta-analysis by Rubenstein et al. (2018). The results show that
employee turnover was significantly negatively correlated with:
• pay, i.e. all monetary compensation including base pay and contingent (variable) pay
(correlation of -0.17)
• reward contingency, i.e. degree to which rewards are based on an individual’s performance (-
0.20)
• rewards beyond pay, including benefits, career/growth opportunities, and training time (-
0.28).
As you can see, rewards beyond pay mattered even more than pay itself! So, as a takeaway for your
practice: When it comes to an employer’s value proposition, managers can use a variety of factors
besides pay.
2.9 Non-financial rewards
When considering rewards, we frequently overlook non-financial rewards, particularly recognition.

Fred Luthans, a leading academic expert on employee recognition, notes that “employees never seem
to tire of recognition. In psychological terms, they do not seem to become satiated, or filled up with
recognition as they do, say, with food or even money. For some, in fact, the more recognition they
get, the more they want. Fortunately, it is not difficult to recognize people, and there are many ways
in which it can be done”. He offers the following recommendations for recognising employees
(Luthans, 2010: 105):
1. Practice giving concentrated, focused recognition by calling deserving employees into your office
and thanking them for doing an outstanding job. During this interaction, focus is only on the
detailed recognition and nothing else, so that the effect is not diluted by the discussion of other
matters.
2. Buy a trophy and give it to the most deserving employee in the unit or department. Inscribe the
individual’s name on the trophy, but leave room for additional names. To help ensure fairness and
acceptance, at the end of a month, have this recipient choose the next member of the unit to be
recognized and explain why this individual was chosen.
3. Recognize an employee who is located in another locale and does not get a chance to visit the
home office very often. Deal with this ‘out of sight, out of mind’ problem by faxing, e-mailing, or
leaving a voice mail for the person that says ‘thank you for a job well done.’
4. Write a note that recognizes an individual’s contributions during the last pay period and attach
this note to the person’s pay check.
5. When you get a raise or a promotion, acknowledge the role that was played by your support staff
by taking all of them out to lunch. In sports, a smart quarterback who receives all the attention
for a win will always recognize especially his line in front of him and may even take these ‘unsung
heroes’ out for dinner or buy them something.
6. Take a picture of someone who is being congratulated by his or her manager. Give a copy of the
photo to the employee and put another copy in a prominent location for everyone to see.
7. Have a senior manager come by and attend one of your team meetings during which you
recognize people for their accomplishments.
8. Invite your work team or department to your house on a Saturday evening to celebrate their
completion of a project or attainment of a particularly important work milestone.
9. Recognize the outstanding skill or expertise of an individual by assigning the person an employee
to mentor, thus demonstrating both your trust and your respect.

10. The next time you hear a positive remark made about someone, repeat it to that person as soon
as possible.
11. Stay alert to the types of praise and recognition that employees seem to like the best and use
these as often as possible.
12. Catch people doing things right – and let them know!”
2.10 Equity in rewards
The issues of equity and fairness in reward management are paramount. Motivating power of rewards
stems not from the rewards per se, but from how they are perceived by individuals. Employees’ views
on whether the rewards are allocated fairly play as significant a role as the rewards themselves.
At the foundation of organizational behavior approach to organizational justice lies the equity theory
(Adams, 1965)(Adams 1965). Equity theory suggests that an employee perceive her/his relationship
with employer as an exchange: the employee contributes ‘inputs’ (e.g. knowledge, skills, abilities,
effort and enthusiasm) and expects to receive a just return, or ‘outcomes’, such as pay, perquisites,
and recognition.
Individuals assign various values, or ‘weights’, to inputs and outcomes. Although the weighting process
is not precise, individuals can distinguish between important and less important inputs and outcomes.
Once they arrive at a ratio of inputs to outcomes for themselves, they compare it with their perceived
ratio of inputs to outcomes for “referents”, i.e. relevant others in the same or similar situation. A
referent that an individual chooses for comparison may be a co-worker, a friend, a neighbour, or an
industry or professional peer group. These referents become the objects of comparison for the person
in determining whether she/he feels equitably treated. Inequity is said to exist when the ratio of an
individual’s outcomes to their inputs departs to a significant degree from the ratio perceived for the
referent.
Three different equity relationships can exist: equity, negative inequity, and positive inequity.

2.10.1 Consequences of perceived inequity
Perception of inequity leads to dissatisfaction and distress, either in the form of anger (when the
individual perceives that they are under-rewarded) or guilt (when they perceive themselves to be
over-rewarded). This tension provides a motivating force to reduce the inequity and restore equity.
The equity theory (Adams, 1965) suggests that inequity tensions may be reduced in a number of ways.
• People may alter their inputs – increase or decrease them – to restore equity. They may
reduce their effort, that is, work less, if they perceive that they are under-rewarded, or
increase their efforts, that is, work harder, if they feel overrewarded.
• People may also alter their outcomes – though this appears less common. The predominant
mode is to try to increase outcomes to reduce negative inequity - for instance, when a union
brings pressure to get a pay raise – to shift outcomes into balance with expectations. Other,
yet more alarming way, in which employees – not infrequently – attempt to restore equity by
manipulating the outcomes is theft. Research shows that theft by employees is quite
widespread and represents a major cost to many businesses. In many instances theft is
motivated by a desire to redress perceived grievances and to increase income to a point where
an equitable balance is achieved relative to perceived input. Employees steal to pay
themselves what they think is justly theirs for what they put into their work.
• People can also rationalise the inequity and try to convince themselves that if they are over-
or under-rewarded, this is what they really deserve. They may also choose a different referent
– the one who, in their eyes, is rewarded similarly to the way they are rewarded themselves.
In other words, individuals can try to distort their perceptions – though this is not an easy way
out.
• Employees may also try to attempt to affect the referent’s ratio. It is not uncommon that the
‘rate busters’ are pressured by their peer group to produce less.
• When an individual feels powerless to restore equity, they may simply leave the field – quit
the job and move to a different organization that would treat them more fairly.
The impact of positive inequity on behavior is generally considered to be less significant and worthy
of attention than that of negative inequity. Unsurprisingly, people can easily rationalise the positive
inequity, in other words, find the way to explain why they have been treated better than someone
else.

It is the negative inequity that has potentially detrimental effects for organizations, particularly when
the individuals who perceive themselves to be unfairly treated take action to reduce the inequity by
decreasing their inputs, sabotaging the work of others or deciding to quit and search for job
elsewhere.
2.10.2 Practical implications
Equity theory and research demonstrate that justice is a significant motivating factor and that the
perceived injustice can have detrimental effects both for the individual (e.g. stress, emotional
exhaustion and burnout) and for the organization (e.g. reduced effort, increased voluntary turnover,
and theft).
Organizations must take fairness seriously and ensure that employees perceive that they are treated
fairly. As with many other aspects of motivation, what matters here is not what some ‘objective
observer’ thinks is just or unjust or what managers think is fair. What matters is what employees
themselves think and feel.
Therefore, organizations firstly need to assess what employees perceive as their significant inputs. Is
it their education, their experience and/or tenure in the organization, the number of hours they spend
on the job or something else?
Secondly, organizations need to assess what employees perceive to be the significant outcomes. Apart
from pay, is it status, perks, responsibility, flexible working arrangements – or something else?
Remember that the perceptions of important inputs and outcomes are likely to vary between different
categories of employees and possibly between individual employees; and so there would be no ‘one
size fits all’ solutions.
It is also important to pay attention to equity when trying to understand employee behavior. If an
employee does not work as hard as they used to, if employees leave ‘unexpectedly’, if there are cases
of theft, if an employee goes off sick with stress, equity may not be the first explanation that would
come to the manager’s mind. But this explanation must be explored, as the feeling of inequity may,
indeed, account for each of these behaviors.
2.10.3 Distributive and procedural justice
So far we have discussed the issue of fairness in terms of the amount of reward (“outcomes”) that
individuals receive for their inputs. This is called “distributive justice”. The question of fairness,
however, extends beyond distributive justice and encompasses two other types of justice: procedural
justice and interactional justice.

Procedural justice concerns the fairness of the procedure used to make a decision regarding the
allocation of rewards.
The importance of procedural justice is reflected in the so-called ‘fair process effect’. If individuals
perceive the amount of rewards allocated to them as unfair, but regard the process of allocation as
fair, they are less likely to react negatively to the distributive inequity. This is a strong argument in
favour of not just fair, but also transparent, performance and reward management policies and
processes.
Procedural justice raises the question of what is fair. For example, is treating everyone the same (that
is, equally) fair? Or is it fair to treat everyone equitably, that is, differently depending on particular
criteria, such as, say, their individual needs or their input?
In some situations (and some cultures), people expect to be treated equally, in others – equitably, and
in some circumstances they believe that the distribution of rewards should be based on the person’s
need rather than the person’s inputs. (Take, for instance, the issue of leave: in the UK organizations,
all employees are entitled to annual leave, but new parents can also take maternity and paternity
leave.)
Equity versus equality
Ryan and Wessel (2015: 172) draw attention to “the paradox of increased expectations of consistency
accompanied by increased expectations of inconsistency in the treatment of employees”. With
increases in equal opportunity laws, people expect to be treated the same as others in HR decision
making. At the same time, increasing workforce diversity and desires for “i-deals” (i.e. individualised
employment contracts) reflect the expectation that individual differences in needs and wants will be
recognised and that different individuals will be treated differently.

Case: CEO pay and income inequality
Consider the following statistics: From 1979 to 2007, the average annual earning of the top 1 percent
of wage earners in the United States grew 275 percent. At the same time, the earning of the middle
60 percent of wage earners grew only by 40%, and the earnings of those in the bottom 20 percent
grew only by 18 percent.
There is also a considerable variance across countries in the pay of executives relative to those of the
median worker. In 2012, this ratio was 58 to 1 in Norway, 67 to 1 in Japan, 104 to 1 in France, and 354
to 1 in the US (The Globalist 2013).
Executive compensation strongly contributes to the growing income inequality. Over the past several
decades in many countries there has been an effort to tie executive compensation more closely to
firm performance. In particular, executive compensation schemes increasingly include equity
compensation, where options to purchase shares of stock at a set price are granted to management
on the basis of firm performance. Interestingly, however, a tighter coupling of executive
compensation and firm performance is not a sufficient explanation for the growth in CEO wages. For
example, in the US during the period between 1990 and 2005, corporate profits increased 107
percent, while CEO pay grew 298 percent (and workers’ wages increased only 4 percent).
One reason for the outpaced growth of executive wages stems from a common practice of
benchmarking. With benchmarking, executive compensation is targeted at a specific range (e.g. 50th,
75th, 90th) of the benchmarked firms; rarely, if ever, it is set below the median. If most firms use
external benchmarking and aim to pay at or above the median, pay will increase because of the
upward bias in target and the repeated “leapfrogging” of firms. Moreover, this benchmarking system
creates feedback loops such that the decision by a small number of corporate boards to dramatically
increase executive pay has a sizable influence on executive pay at other firms. As a result,
benchmarking to set pay drives executive income higher than would be expected by rising corporate
profits alone. Some organizations do try to contain the executive compensation growth and set their
executive pay in comparison to other employees of the firm. For example, WholeFoods cap CEO pay
at nineteen times its average annual wage. Such organizations, however, are in minority.
Another contributing factor is the increase in external hiring, i.e. recruitment of CEOs from outside
the organization. During the 1970s in the United States, fewer than 15 percent of newly appointed
CEOs were hired externally. By the late 1990s, nearly a third of all CEO appointments came from
outside of firms. Much in the same way that external hiring of workers alters the demand for skills,

the use of external hiring represents a shift in the reliance on general managerial versus firm-specific
skills. To compensate executives for the loss in future value of their firm-specific investments, the
hiring organization may pay a premium to entice an executive to switch firms.
Question: As a future CEO, what criteria for CEO remuneration do you consider “fair”?
2.10.4 Impact of justice
Research shows that justice has a significant impact on the key areas of performance: task
performance, organizational citizenship behaviors and counterproductive behaviors. The results of
the latest meta-analysis (Colquitt et al., 2013) based on findings from 413 scientific studies show the
following.
In terms of task performance, distributive justice matters most (correlation of 0.26), that is, both
material rewards, such as pay, and non-material rewards, such as praise, should reflect the
contributions that people make. If your decisions are perceived as unfair, then your employees may
be less willing to do their job well. Procedural justice comes the close second (0.24). And – although
informational justice and interpersonal justice only have a small correlation with task performance
(0.16 each) – these correlations are not trivial. And if things that don’t cost you much (like treating
people with dignity and respect, and explaining your decisions honestly) can improve the way people
do their job, then that is a very important thing to keep in mind!
For organizational citizenship behaviors, fairness matters even more as the lowest correlation is in the
twenties and the highest is in the forties: for interpersonal justice – 0.43, for informational – 0.42, for

procedural – 0.30, and for distributive – 0.21. For these behaviors, treating people with dignity and
respect – that is, interpersonal justice – and explaining the decisions thoroughly and honestly - matters
considerably more than the distribution of rewards.
Finally, justice also impacts counterproductive behaviors. Here, informational justice comes first – but
all types of justice play significant role.
2.10.5 Improving perceptions of justice
What can you do in practice to improve justice – and perceptions of justice? Here are some
straightforward HR interventions. These focus primarily on managers – because employees judge the
fairness of their organizations by the fairness of their managers.
• When selecting new managers, consider traits which predict that people will follow justice
rules – such as emotional stability and empathy.
• Provide managers with behavioral training on justice principles–procedural, distributive,
interpersonal and informational. For instance, how do your managers ensure they speak fairly
about individual contributions in team achievements or failures?
• Incorporate justice principles into performance appraisal systems, developmental feedback
processes and on-the-job coaching. For example, appraise managers on how properly they
communicate with employees, or how consistent they are at listening to their team members.
• Finally, supplement your employee survey with measures of justice that focus on how
employees experience managerial behavior related to specific practices.
You also need to ensure an effective oversight of justice principles for the whole organization. For
instance, check whether the policies are consistently applied across units and whether there are any
biases in in the practices that run throughout the business.
2.10.6 Environmental impacts on perceptions of justice
Technological changes and increasing flexibility and individualisation of employment contracts

contribute to greater complexity in managing perceptions of justice.
Increasing flexibility in work arrangements can challenge two fundamental notions associated with
justice perceptions: equity in outcomes and consistency in procedures. Individuals make distributive
justice judgments regarding whether the outcomes received are fair, often based on social
comparisons. If others have different deals from one’s own, perhaps based on something other than
“traditional” inputs, individuals may see it as unfair. For example, if one person can telecommute or
work part-time, why can’t others? If one negotiates a late start time on Tuesdays, why can’t everyone?

While the positive side of a flexible workplace is accommodation and recognition of individual needs,
the negative side is that inconsistency tends to lead to perceptions of procedural unfairness.
Ryan and Wessel (2015: 172) draw attention to “the paradox of increased expectations of consistency
accompanied by increased expectations of inconsistency in the treatment of employees. With the
increases in technology creating uniformity in HR processes and increases in equal opportunity laws
globally, people expect to be treated the same as others in personnel decision making. At the same
time, recognition of diversity and desires for i-deals (i.e., individualised employment contracts) speak
to expectations of recognizing individual differences in needs and wants, thus treating people
differently (or inconsistently).”
Communication technologies also have significant impact on perceptions of justice. Technology may
allow for different information with which to make distributive justice judgments. Employees may be
able to access greater quantities of comparative information as shared information across cyberspace
can allow an employee to more quickly learn if his pay raise is substandard for his industry or for a job
applicant to learn what kinds of salary offers individuals with his number of years of experience are
getting. Access to advanced technology itself might also be an outcome that affects fairness
perceptions (e.g., who gets newer software or hardware, who receives technical training).
Technology also affects interpersonal justice perceptions (i.e., evaluations of whether one feels
treated with dignity and respect in the context of a decision) and informational justice perceptions
(i.e., whether one feels informed as to what is happening and given an adequate explanation as to
why it happened).
Thus, technology may affect informational justice in that it leads individuals to communicate decisions
in briefer terms and more rapidly. Receiving information about procedures and decisions of interest
(e.g., who got promoted, what one’s next work assignment is) more quickly should be viewed
positively; however, less explanation for the decision may be viewed more negatively. Technology-
mediated communications can be misunderstood because of their brevity and the lack of non-verbals
and that can affect interpersonal justice perceptions. For example, a simple yes or no answer to a
question might be seen as rude and abrupt when conveyed virtually in response to a long email
request, but might be fine if in a face-to-face context one saw a manager was very busy.
2.11 Increasing effectiveness of reward management system
Rewards management is a complex and often confusing topic. Although remuneration costs comprise,
on average, a substantial portion of all costs (e.g., in the US they equal to 65% to 70% of total costs in
the economy), most managers are not sure of the likely consequences of spending either more, or
less on employees or of paying employees in different way.

To develop a process for effective reward management, Armstrong, Brown and Reilly (2011) have
employed the evidence-based approach: They reviewed the relevant literature, used results of a
survey conducted by an organization called ‘e-rewards’ and conducted case studies of 13
organizations, ranging in size from 3,000 to 70,000 employees. They examined the incidence of reward
evaluation, why organizations do or do not evaluate, evaluation criteria, and the approaches used by
case study organizations to assess reward effectiveness. The survey data revealed a piecemeal
approach to reward evaluation. Thus, in the US, only 13% of organizations surveyed evaluated base
pay and only 18% evaluated variable pay, and in the UK the percentage ranged from 12% to 46%.
Reasons for evaluating the rewards (among those who did so) varied: Some responded that it was
essential to establish a direct link between reward spend and benefit to the organization. Others
wondered why a company spending thousands or millions of pounds on reward would not try to
understand the effect of such a large investment. Some respondents simply maintained that every
organization needs to know what is going on and should “give it a try”.
The reasons for not evaluating the reward system included: lack of time or resources, lack of
information or data, lack of analytical skills, and senior management indifference. Reasons for not
evaluating were equally enlightening. Managers, having spent considerable time, energy and
resources in developing and implementing a new pay system, are likely to have a psychological
investment in its success and thus have little inclination to carry out any rigorous evaluation. Managers
are also often sceptical about the value of pay system evaluation – they think that the link between a
pay system and a given outcome (e.g., staff attitudes or service delivery) is well-nigh impossible to
prove.
Armstrong et al. (2011) have identified the following criteria used by organizations to evaluate the
effectiveness of reward management:
• employee attitudes
• analysis of pay market positioning
• employee turnover
• assessment against reward strategy objectives
• financial costs
• business financial performance
• impact on employee performance/productivity
• length of service
• absenteeism
• other business metrics, e.g. sales; customer service
• vacancy rates
• job retention rates.

Based on their analysis, Armstrong et al. (2011) have developed a process model for evidence based
reward management – an application of evidence-based approach to evaluating rewards. The model
consists of the following components:
1. setting strategic objectives,
2. conducting reward reviews of current policies and practices, 3
3. measuring reward effectiveness, and
4. using the data generated by reviews and measurements to evaluate reward outcomes as a basis
for introducing new or improved reward practices.
These components may be applied sequentially or not sequentially, depending on the needs of the
situation, as depicted in the following diagram:
This evidence-based model is intended to provide a framework for improving reward management
systems. It describes rather than prescribes. It is concerned with how the process of thinking about

the review and evaluation of reward policy and practice is carried out but does not propose a
universally applicable method of doing so. The authors concede: “We are well aware from our
experience and research that all organizations are different and that in each case approaches which
fit their circumstances are required”.
The authors conclude: “We accept the difficulties involved and the influence of social and political
pressures in reward practices. But despite these difficulties, many of our case study organizations had
found that the process of trying to improve evaluation had generated significant improvements in the
understanding of what pay and reward practices are designed to achieve and the extent to which they
are delivering this. It is certain that reward management practices would improve if they were more
strongly rooted in evidence on what works and why”.
2.12 TAKEAWAYS
1. In HRM context, reward means the recognition of contributions or achievements of employees

(individually or in groups) by a financial payment or a non-financial recognition. Reward
management is the process of ensuring that people are rewarded fairly for their work and their
contribution to the achievement of organizational goals.
2. Reward management is central to the relationship between employers and employers. The reason
most people work is because they depend on salary or wages to support their existence. From a
general management perspective, in addition to the significant cost of employee remuneration,
the reward management decisions are key to achieving (and maintaining) organizational
competitiveness. From HRM perspective, the success of major HR activities depends on reward
policies and practices. Thus, success in recruitment is directly linked to reward packages; and the
ability to motivate and retain employees are largely influenced by perceived fairness in rewards.
3. A reward system consists of the interrelated processes and practices which ensure that reward
management aligns with reward strategy and is carried out effectively for the benefit of the
organization and its employees. Total rewards include: (1) remuneration (base pay, contingent
rewards, allowances and employee benefits) and (2) non-financial rewards.
4. Designing a reward system involves five choices: (1) what to pay for (e.g., performance, skills,
time); (2) what position to adopt in the market; (3) whether to focus on internal equity or on
external benchmarks; (4) whether to centralise or decentralise reward management; (5) the
precise nature of the reward “mix”.
5. Less formal pay arrangements include single rates or pay ranges for a job or a person. A formal
pay structure is a collection of wage/salary grades, levels or bands that link related jobs within a
hierarchy. Formal pay structures are defined by a pay spine, a pay grading and a grouping of jobs

(job or career families). Pay structures need to be flexible enough to accommodate change in the
organization or in the external market and be sufficiently clear for individuals to understand.
6. Three mechanisms that can be used to determine the basic rate of pay for a job are market pricing,
job evaluation and collective bargaining. Pay progression arrangements include length of service,
age-related increments, individual, team and organizational performance-related pay,
competency-based and skill-based pay; market rates; and inflation linked pay rises.
7. Pay for performance (PPF) promotes performance through the incentive effect and the sorting
effect. Individual-based PPF plans have a moderate effect on performance and fit better where
work is independent and competition between individuals is encouraged. Team-based plans have
large impact on performance plans and fit better for interdependent work. In teams, equitably
distributed rewards lead to higher performance than equally distributed rewards. PPF plans
frequently fail due to the poorly designed (incomplete, subjective or uninfluencable) measures of
performance, insufficient incentive size, and simultaneous use of competing incentives.
8. Justice is a significant motivating factor. Perceived injustice in the distribution of rewards can have
detrimental effects both for the individual (e.g. stress, emotional exhaustion and burnout) and for
the organization (e.g. reduced effort, increased voluntary turnover, and theft). There are four
types of justice: distributive, procedural, informational and interpersonal. What is perceived as
“fair” (e.g., equitable versus equal distribution) varies across individuals, cultures, and situations.
9. To improve effectiveness of a reward management system, organizations must set strategic

objectives for reward management; conduct reward reviews of current policies and practices;
measure reward effectiveness; and use evaluations of reward outcomes to develop new or
improved reward practices.
Section 3: Performance management
3.1 Learning outcomes
By the end of this section you will be able to:
• define performance management

• describe the key stages of performance management cycle
• discuss the current trends and debates in performance management

• set effective goals, taking into account general principles of goal setting, different types of
goals (performance, behavioral, and learning) and the goalsetting context, including task
complexity and novelty and other relevant factors
• explain the role of performance appraisal in performance management
• identify key factors that affect the effectiveness of performance appraisal
• identify the advantages of a strengths-based approach to feedback.
3.2 Linked readings
Organizational Behavior, Chapter 2 Job Performance, section Application: Performance Management
Organizational Behavior, Chapter 6 Motivation, section Goal Setting Theory
Organizational Behavior, Chapter 7 Trust, Justice and Ethics, section Why Are Some Authorities More
Trusted Than Others
3.3 Defining performance management
Have you had a performance appraisal recently? Were you appraised yourself or did you appraise
someone else’s performance? How would you rate this experience? How effective was the appraisal
in terms of performance improvement?
If you found the experience unpleasant and ineffective, you are not alone.
• According to a survey conducted in October 2015 by the Chartered Institute of Personnel and
Development in the UK, 55 per cent of senior HR leaders and 73 per cent of senior non-HR
business leaders consider annual appraisals to be ineffective.
• According to data collected in 2012 by the US-based Corporate Leadership Council, more than
90 per cent of managers, employees, HR heads feel that their performance management
processes fail to deliver the results they expect.
• The Corporate Leadership Council also estimates that in the US managers spend about 210
hours and employees about 40 hours per year on performance appraisal and performance
management activities such as formal goal-setting processes, midyear and year-end reviews,
and extensive rating and calibration processes. For a 10,000-person organization with average
salaries, plus the other costs associated with performance management such as HR time,
training costs and software, the process may cost over $35million dollars annually.
• Formal performance reviews are not only perceived to be of little value, they are also dreaded
and may be highly demotivating to even the highest performing employees. Kevin Murphy, a
performance-review guru at Colorado State University, sums them up as an ‘expensive and
complex way of making people unhappy’.

Although many organizations have systems labelled ‘performance management’ these are usually
only performance appraisal systems. Performance appraisal emphasises assessment of an employee’s
strengths and weaknesses, but does not include strategic business considerations. Also, performance
appraisal systems usually do not include extensive and ongoing feedback that employees can use to
improve future performance. Finally, performance appraisal is a once-a-year event, often driven by
the HR department, whereas performance management is a year-round way of managing business,
driven by managers.
How do organizations manage employee performance? What are the problems with the current
dominant practice of performance management and how can we fix them?
Performance management is a ubiquitous feature of organizational life and manager’s work. And so,
no doubt, you will have your own answers to these questions, based on your experience.
In this section, we present a broader, evidence-based picture of what performance management is

expected to deliver, what it delivers in reality, and what changes you can make to improve
performance management.
What is performance management? To start with, let us state most emphatically, performance
management is not the same as performance appraisal. Performance appraisal forms only part of a
performance management system.
Performance appraisal (also called ‘performance review’) is the evaluation and depiction of
employees’ strengths and weaknesses in a non-continuous manner, typically just once a year. This
process is often perceived as a bureaucratic waste of time created by the HR department. In contrast,
performance management is ‘a continuous process of identifying, measuring, and developing the
performance of individuals and teams and aligning performance with the strategic goals of the
organization’ (Aguinis, 2009: 2). Performance management entails and represents much more than
performance appraisal.
Firstly, measuring performance is only one component of performance management. Under a

performance management system, supervisor and employee agree on set goals for the employee.
These goals include both results (the actual outcomes that the employee produces) and behaviors
(how the outcomes are achieved.
Secondly, performance management takes into account both past and future performance. Personal
developmental plans specify courses of action to be taken to improve performance. Such plans
highlight employees’ strengths, and the areas in which they need development; moreover, they
provide a course of action to improve weaknesses and further develop strengths.

Thirdly, performance management requires managers to ensure that employees’ activities and
outputs are congruent with the organization’s goals in order to gain competitive advantage.
In contrast to performance appraisal, performance management is ongoing. It involves a never-ending

process of setting goals and objectives, observing performance, and giving and receiving ongoing
coaching and feedback.
Finally, performance management is ‘owned’ by those who participate in the system: raters and
ratees. It is not exclusively an HR function, but rather a business unit function.
3.4 A broad view of performance management
To achieve performance improvement among employees, teams and, ultimately, organizations,

performance management focuses not only on performance outcomes, but also on employees’ skills,
knowledge and behavior and how they should be developed. The complexity of performance
management arises from the fact that it must align with systems and processes for organising work,
as well as core HR systems, such as those used for recruitment and reward. A wide range of tools and
methods can be used, including objective setting, performance appraisals, manager and 360-degree
feedback, learning and development programmes, and reward and recognition schemes.
We have stressed that performance management is a much broader activity than performance
review/appraisal. Let us now also emphasise that performance management is not the only part of an
organization’s overall HRM system that is responsible for the employee performance.
Employee performance is a function of three components:
1. ability (understood broadly as knowledge, skills, abilities and other factors (KSAOs)
2. motivation, and
3. opportunity.
Consequently, employee performance falls under the three following HRM policy domains:
• The ability (KSAO) domain focuses on HRM efforts that influence the competencies of
employees and includes recruitment, selection, and training policies.
• The motivation and effort domain comprises HRM policies that influence employee
motivation and effort and includes performance management and reward management
policies.
• The opportunities to contribute domain encompasses HRM policies that allow employees to
deploy their KSAOs and effort and includes job design policies and involvement policies.

Individual and team performance thus represent the outcomes of HRM policies and practices in all
three domains, rather than solely of performance management per se.
In our introduction to HRM, we emphasised that HRM is a system, and that various HR policies and
practices must be aligned with each other. For example, the competencies used as a basis for
performance management should be the same as those used for selection and training. This not only
ensures that employees are being hired, trained and appraised on a consistent set of critical job
requirements, but also sends a strong message, internally and externally, about what is valued by the
organization.
No single HR practice, such as performance appraisal, will affect firm performance on its own. Even
the most sophisticated performance appraisal system that focuses employees on engaging in the
‘right’ behaviors will have little impact on firm-level outcomes, unless it is accompanied by selection
and training systems that ensure that employees have the capabilities needed to perform those
behaviors; reward systems that ensure that employees are motivated to do what is needed to further
corporate goals; and work design systems that offer employees opportunities to engage in behaviors
that impact on firm-level outcomes. Thus, performance management, broadly understood,
encompasses all HRM practices employed by an organization to ensure that employees have the
means, motivation and opportunity to improve firm-level performance.
Therefore, performance management systems must be integrated with other HRM practices to
produce a broader conception of ‘performance management’.
3.5 Strategic approach to performance management
Strategic Alignment
As discussed in our introduction to HRM, all HRM practices must be aligned, not only horizontally with
each other, but also vertically with the overall organizational strategy.
This dictum certainly applies to performance management: an organization’s performance

management system must be congruent with its organizational strategy. For example, in investigating
contingency approaches to HRM, Youndt et al. (1996) found that different types of HR systems work
best in companies pursuing specific manufacturing strategies. They found that firms pursuing a low-
cost strategy achieve better operational outcomes when using a bundle of practices that includes
results-based performance appraisal, while firms pursuing a highquality strategy benefit from a
bundle that includes behavior-based performance appraisal.
Of course, tying the performance management system to strategic goals will not necessarily relate
positively to overall performance; the organization may still choose the wrong strategies, and

environmental contingencies also play a role. However, a performance management system that is
not informed by the firm’s strategic focus is less likely to be successful.
Line of Sight
In addition to being aligned with the strategic goals of the organization, a performance management
system must provide a clear link between individual, unit and organizational goals.
This is known as ‘line of sight’, and refers to an employee’s understanding of the firm’s strategic goals
and the actions necessary to accomplish the goals. Therefore, performance management should focus
on behaviors that:
• employees can see are related to the achievement of strategic goals; and
• are under the control of employees.
For example, a bank teller may define her job according to the kind of behaviors for which tellers are
rewarded: customer service, accuracy and selling services. This teller may be told that she is the ‘best’
teller, but the bank is still in trouble because the loan department took on ‘bad’ mortgages. In this
case, the teller may not see how improving her behavior will help the bank be more successful.
Furthermore, the bank teller needs performance targets that are under her control, responsive to her
efforts, and minimally affected by extraneous factors. Therefore, if we want to reward the bank teller
for customer service, we must be able to show her how that customer service contributes to the
overall performance of the bank. The teller cannot make better loan decisions but she can ensure that
the bank does not lose customers, and this must be shown to be important as well.
Thus, all employees must be shown how whatever they do in their jobs has some effect on firm
performance, regardless of the size of this effect.
3.6 Performance management cycle
Let us now look more closely at what performance management actually entails. There are several
popular models of the performance management cycle (Aguinis, 2013; Armstrong, 2012; Pulakos,
2004). These models differ in terms of complexity, specificity, number of steps and levels of
participation between managers and employees. However, they share clear commonalities in terms
of the managerial behaviors involved in executing an effective performance management process.
Here, we present a model devised by Kinicki et al. (2013) based on an integration of existing models.
Performance management cycle

The model consists of four steps:
Step 1 Define Performance. The performance management process begins by defining ‘successful’
performance. This is a critical element because it sets the standard for performance (i.e. what is to be
achieved) and provides a foundation for establishing performance goals and communicating
expectations and action plans (i.e. how the work is to be achieved). Manager should establish
adequate performance and developmental goals linked to the organization’s vision and strategic
goals. Although goal-setting theory (to be reviewed later in this unit) shows that participative and
assigned goals are equally effective, today’s employees have come to expect more participation and
empowerment in the performance management process because it affects their rewards and career
progression. Communication is a key component of this step.

Step 2 Evaluate Performance. Evaluating performance encompasses monitoring, facilitating,
discussing and evaluating performance.
Step 3 Review Performance. This step requires managers to provide performance feedback and coach
employees for future success. Providing effective feedback is a key performance management
behavior which leads to enhanced performance when it is specific, frequent and positive. Definitions
of coaching vary according to the perspective, the intended recipients, the objectives and the setting.
Some take a narrower perspective, defining coaching as ‘managers providing one-onone feedback and
insights aimed at guiding and inspiring improvements in an employee’s work performance’. Others
define it as a broader process ‘through which supervisors may communicate clear expectations to
employees, provide feedback and suggestions for improving performance, and facilitate employees’
efforts to solve problems or take on new challenges’. A key theme of these definitions is that coaching
involves managerial behaviors aimed at improving employee performance. Research supports the
prediction that coaching is positively associated with various metrics of employee performance.
Step 4 Provide Performance Consequences. The final step establishing performance consequences
that serve to reinforce and reward employee behavior. It integrates processes associated with
performance improvement and employment decisions.
We will discuss these steps in more detail.
3.7 Goal-setting
What is goal setting? Goal setting is one of the most powerful and evidence-based interventions for
enhancing performance, provided that moderating factors such as goal attribute, type of task,
organizational context and employee characteristics are carefully taken into account.
This conclusion comes from the rapid evidence assessment (RAE) of the research literature on the
effect of goal setting on workplace carried out by the Chartered Institute of Personnel and
Development in 2016. The RAE was conducted following the principles of evidence-based
management and provides the ‘best’ up-to-date evidence on this subject.
Let us look into what goal-setting is and how to set the goals that motivate performance improvement.
What is a goal? In one’s personal life, a goal is simply something you are trying to do or achieve. In the
domain of management, a goal can be defined as an observational or measurable organizational
outcome to be achieved within a specified time limit.
Goal setting is the process of consciously deciding goals you or the organization want to accomplish
and within what timeframe.

Here, we focus on conscious goals, aiming to steer behavior at work and lever employee and
organizational performance. As such, organizational goal setting can refer to desired work or business
outcomes, as well as the intention or plan to act towards them.
Goal setting is one of the most researched topics in the field of industrial and organizational
psychology. (Note that goal setting is not to be confused with creating competition. There is no
noteworthy relation between competition and performance. Competition will motivate some
employees to achieve; others, however, will be demotivated by competitive contexts and actually
somehow avoid to achieve, for instance, out of fear to fail).
3.7.1 Not so SMART goals
In some shape and form, goal-setting is practiced in most, if not all organizations. Many organizations
have taken on board the advice of goal-setting research in their performance management systems.
Unfortunately, it seems to be the case that this advice has been commonly misinterpreted.
You have probably heard of the acronym SMART, which stands for making the goals specific,
measurable, attainable, relevant, and time-bound. This acronym and the five characteristics of
motivating goals that it encompasses is widely used as a template for goal setting. It does, indeed,
bear some resemblance to the recommendations of the goal theory.
For instance, it does note that the goals should be specific and attainable. The acronym, however, also
dilutes this theory’s advice. For example, it asks for both ‘measurable’ and ‘specific’ goals – but can
you tell the difference between the two? Most importantly, the acronym misses the main advice of
the goal-setting theory – that the goals must be high or hard.
3.7.2 Research evidence on goal setting
Does goal-setting work? A straightforward answer is ‘yes’. Goal-setting theory was developed
inductively from approximately 400 studies. More than 1,000 studies have since tested this theory,
and it is applicable to employees, teams, departments and organizations.
To give some examples of the magnitude of the effect, consider the following findings:
• According to a systematic review of 61 controlled studies covering over 10,000 subjects

(Mesmer-Magnus and Viswesvaran, 2007), the effect sizes of goals on learning outcomes were
up to r=0.73. This represents a very large impact.
• Kleingeld et al.’s (2011) meta-analysis of controlled trials found that overall, including specific
challenging goals, moderate goals and easy goals, goal setting had effects of d=0.56 on group
performance. This indicates a medium effect.

How does goal-setting work? The causal relationships specified by goal-setting theory are threefold:
1. A specific, challenging goal leads to higher performance than a specific, easy goal, an abstract
goal such as to do one’s best, or setting no goal. The disadvantage of a vague goal is that it is too
idiosyncratic; it is too ill-defined. The disadvantage of setting no goal is that it leads to a lack of
focus, and hence people meander.
2. The higher the goal, the higher the performance. There is a linear relationship between the
difficulty of a goal and the resulting performance.
3. Variables such as participation in decision making, competition and knowledge of results only
increase performance to the extent that they lead to the setting of a specific, high goal.
However, there are boundary conditions, or variables, that moderate these causal relationships.
Specifically, the relationship between goal and performance only exists if the following four conditions
are present:
1. Ability. The person must have the ability to attain the goal. The relationship between goal
difficulty and performance levels off when individuals reach the limit of their ability.
2. Resources. The person must have the situational resources (e.g. financial, technological) to attain
the goal. Situational restraints must be minimal.
3. Commitment. The person must be committed to attaining the goal. If a person lacks the ability to
attain the goal, and/or lacks the resources necessary for goal attainment, goal commitment is
unlikely to be high.
4. Feedback. An individual must receive objective feedback on progress toward goal attainment.
Without objective feedback, a person will not know what to start, continue, or stop doing to
ensure that the goal is attained.
Why do goals affect performance? The explanation is fourfold:
1. A person chooses to focus on a particular goal to the exclusion of other possibilities. Goals serve
a directive function. They direct an employee’s attention and effort toward goal-relevant activities
and away from goal irrelevant ones.
2. The choice of a specific, high goal increases effort compared with an easy or abstract goal, or no
goal at all. Such goals have an energising function: high goals lead to greater effort than low goals.
3. Goals also affect persistence. People persist until a specific, high goal is attained.

4. A specific goal cues an individual to draw on an extant strategy or discover a new one to achieve
the goal. Goals affect action indirectly by leading to the discovery and/or use of task-relevant
knowledge and strategies, which increases the odds of achieving them.
3.7.3 Types of goals
According to Latham and Sejits (2016), there are three types of goal: performance, behavioral and
learning.
1. Performance goals focus on an outcome (rather than behaviors that lead to a given outcome).
Examples of performance goals include sales, revenue generated, and costs reduced.
2. Behavioral goals are used when the metrics for which the employee should be held accountable
(e.g. ethics, team playing or the development of subordinates) are not easily reducible to an
outcome measure. Hence, an individual is measured on the behaviors demonstrated within a
given time period. Behaviors can be measured using a 360-degree survey that covers employee’s
manager, peers, subordinates and the employee him- or herself. A systematic measurement of
behavior would employ a behavioral observation scale (BOS) developed from work analysis and
include scales to rate observable behaviors critical to a person’s effectiveness on the job.
Behavioral goals will then entail maintaining a high score on a particular scale or increasing a lower
one.
3. Learning goals are framed in terms of knowledge or skills acquisition (e.g. ‘identify five effective
strategies to improve your teaching evaluations in the MBA leadership course’). A learning goal
draws attention away from a specific task outcome and emphasises discovering, mastering or
implementing effective strategies, processes or procedures necessary to perform a task. This is
important because performing a task that is complex is a function of identifying and implementing
appropriate strategies, rather than sheer effort and persistence alone.
When should you set what type of goal?
• Performance goals should be set for tasks that are straightforward and simple for individuals
to perform and have quantifiable outcomes. Performance goals include sales quotas,
production rates, error rates, and deadlines for tasks (e.g. ‘complete the report by Thursday’).
• Behavioral goals should be set for outcomes that are not easily quantifiable, yet are important
to an individual’s and an organization’s effectiveness. Behavioral goals may include, for
example, the goal of communicating clearly or the goal of treating others with respect.
• Learning goals should be assigned when individuals have yet to master the task.

The causal relationships found for performance goals are generalisable to both behavioral and
learning goals. For instance, a specific, difficult learning goal leads to higher performance than a
specific, easy learning goal or a ‘do your best’ goal. The higher the learning goal, the higher the
performance on a knowledge or skills acquisition task. Setting a specific, difficult learning goal for a
task that requires the acquisition of knowledge leads to better performance than the assignment of a
specific, difficult performance goal. The latter interferes with learning processes, and hence has a
deleterious effect on performance.
3.7.4 Task complexity and task novelty
Goal setting should take into account task complexity and task novelty.
Task complexity depends on:
• The number of actions that must be completed or information cues that must be considered
to perform the task.
• The degree of co-ordination needed to perform the task – this depends on how closely related
are the different components of a task.
• How much the task requirements change over time.
For simple tasks/jobs, you should set performance goals. In ‘simple’ jobs, there is a familiar and
predictable set of tasks to be completed, for which one can prepare with great focus. This is certainly
the case for routine work, whether carrying out the same set of calculations on data or making the
euphemistic ‘widgets’, but it is also the case for some higher skilled jobs. For example, clear and
specific goals have been shown to lead to higher performance for negotiation outcomes, and to higher
efficacy, efficiency and speed-to-market in product development teams.
For complex tasks/jobs, you need to set behavioral or learning goals. Examples of complex tasks are
wide-ranging. They may include analysing and manipulating data, critical thinking, active listening and
dealing with unexpected situations. They may also involve using social skills to adapt one’s behavior
to the people one is instructing, mentoring, co-ordinating with or trying to persuade. Equally, what
might be considered ‘complex jobs’ are also wide-ranging. As well as obvious candidates such as
analysts, engineers and doctors, we might include jobs such as nursing or care work, and customer or
technical support, on the grounds that, while they involve some following of instructions (not
complex), they may also necessitate reactions to unfamiliar cues.
Task novelty refers to whether the task is a new or a familiar task. Another consideration for setting
effective goals is whether the task is a new or a familiar task. Depending on the task novelty, you
should adjust the timeframe for goals:
• For new tasks, set shorter timeframes for goals.

• For familiar tasks, the timeframe can be longer.
What constitutes long or short term is debatable and will vary, so it is a good idea to look at how long
they have been in post or role or how long they have been performing a particular task. If an individual
is new to the post, role or task, the goals you set should be short-term. Once an individual has settled
into the role, but ideally no earlier, managers can look at setting longer-term goals. Equally, if an
employee must acquire the requisite knowledge or skills before they can perform the task, you need
to behavioral or learning goals rather than performance goals (Chartered Institute of Personnel and
Development, 2016b; Pulakos et al., 2012).
3.7.5 Goals for studying
We can translate performance and learning goals into the world of education – and into the context
of your MBA studies. Indeed, there is considerable research on how they impact on knowledge and
skills acquisition and performance improvement in educational settings.
• Performance (or outcome-oriented) goals are about demonstrating competence, gaining

favourable judgments of that competence and avoiding unfavourable ones. In simple terms,
these might be getting a particular grade on an exam, or doing better than your peers. An
orientation toward performance fosters the use of superficial or ineffective learning
strategies. For this reason, and also because focusing on outperforming others makes people
more anxious and worried, an orientation toward performance leads to lower achievement
than an orientation toward learning.
• Learning (or ‘mastery’) goals are about increasing competence. These are self-referential, i.e.
they focus on the development of knowledge and skills relative to the task and the person’s
past performance. An orientation toward learning fosters long-term use of learning strategies
and a belief that success relates to effort. It enhances academic achievement because learning
goals lead to more effective learning strategies. Interestingly, a learning orientation also leads
to the most positive achievement profiles (higher grades, test scores and teacher’s
evaluations of student proficiency).
Case: Enron - Beware wrong goals
Remember Enron? In Enron, tough performance goals led senior employees to set up disastrous deals
and management to falsify records in order to show profits. But the problem at Enron went deeper
and included the performance review programme established there by Jeff Skilling. Relying on a
forced distribution type of system (termed ‘rank and yank’), Enron instituted a policy where, every six
months, every employee’s performance was reviewed by a committee of managers (the Performance
Review Committee, PRC), and was rated on a scale of 1 to 5, where ‘5’ was the worst score. The system
required that 15 per cent of the entire workforce be rated a ‘5’ in each period, and these employees
were ‘redeployed’ to a separate area of the company, given a desk, phone and computer and given a

few weeks to find another job within Enron, or they were fired within six months. However, because
managers on the PRC frequently did not know the employees they were reviewing, other employees
submitted written feedback to ‘help’ the process. In fact, each employee could ask five associates to
submit letters commenting on his or her performance, but anyone else could also submit unsolicited
comments.
The process became extremely political, as employees could undermine each other by submitting
negative comments. Alternatively, employees could enter into deals with one another to submit good
reviews. In the end, most managers used the process to reward friends, and all employees were under
pressure to enlist a senior manager as a protector. Furthermore, associates at Enron came to view this
system as rewarding profit generation only, which instantly motivated every employee at Enron to
‘do deals’ and post earnings, even if these were short-term. As a result, fierce internal competition
prevailed, and immediate gratification was prized above long-term potential.
Paranoia flourished and trading contracts began to contain highly restrictive confidentiality clauses.
Secrecy became the order of the day for many of the company’s trading contracts, as well as its
disclosures, and this compromised how business was conducted. Since complex deals and mark-to-
model valuations had to be approved by risk management, risk managers knew that they would suffer
in their performance reviews if they blocked deals or did not support favourable valuations. Risk
management became little more than a rubber stamp and a stepping stone for employees to move
around the company. Everyone knows how the story ended, but it is not widely recognised how the
performance management system contributed to the downfall of Enron.
Source: Adapted from DeNisi and Smith (2014)
3.7.6 Considerations for goal setting
Several other considerations must be taken into account when setting goals.
1. Individual Characteristics
Cognitive ability. Individuals with high cognitive ability tend to set more challenging goals for
themselves and to engage better in more challenging goals set for them.
Personality. People with a learning orientation (a focus on improving oneself), in contrast to people
with a performance orientation (a focus on doing better than others), set higher goals for themselves
and are more likely to accept higher goals. Consequently, they tend to perform better. The same is
true of people with high conscientiousness.
2. Goal Setting in Groups

Group goals have a robust effect on group performance.
Individual goals may also promote group performance, but they should be used with caution. In a
group setting, individual goals must be ‘group-centric’, i.e. focus on the individual’s contribution to
the group’s work.
People who enjoy being unique and different from others gravitate toward the pursuit of personal
goals, whereas individuals for whom it is more important to maintain harmony within the group
prioritise group goals above personal ones.
3. Performance Feedback and Progress Monitoring
Goal setting has stronger positive effects on performance when combined with performance feedback
or progress monitoring.
Interestingly, it matters little whether progress is evaluated through formal external feedback or
through a person’s own self-monitoring. The source of feedback, impersonal or personal, internal or
external, does not seem to matter, as long as it allows employees to monitor their progress.
4. Participation in Goal Setting
There are several levels of participation of supervisors and subordinates in goal setting:
• Tell: Goals are assigned by the supervisor without rationale.

• Tell-and-sell: Goals are assigned by the supervisor who also provides the rationale for the
goals.
• Consultation: Supervisor consults with employee (or employees in a team) and then decides.
• Participation: Supervisor and employee(s) decide jointly.
• Delegation: Employee (or team) decide on their own goals.
Traditionally, participative goal setting has been thought to be associated with better performance
than assigned goals. One explanation for this is that employees are more committed to their goals
when they are allowed to decide for themselves which ones to pursue. However, there is no firm
evidence that participative goals lead to better performance.
3.7.7 Goal setting: a checklist
Altogether, we can offer the following “checklist” for goal setting
1. When setting goals, ensure that they are:

a. clear and specific.

b. high/challenging yet attainable.
2. Match the types of goals (performance, behavioral and learning) to:

a. task complexity.
b. task novelty.
c. individual characteristics of the person for whom you are setting the goals.
3. Match the goal timeframe (short or long term) to task novelty.
4. In group settings, connect individual and group goals.
5. Incorporate progress monitoring and feedback.
6. Remember that goals will not work in the absence of ability to perform the task.
3.8 Performance appraisal
For goal setting to be effective, we need to know how we’re doing. Some type of feedback, rating or
assessment – in short, some type of performance appraisal – is thus crucial. This is not the same as
saying we should retain the formal process of ‘annual performance appraisal’ as it has most commonly
existed. We would argue that performance appraisal should be seen in a broader light.
What is performance appraisal? One of the most widely-used definitions describes performance
appraisal as the ‘formal evaluation of an employee’s job performance in order to determine the
degree to which the employee is performing effectively’ (Griffin and Ebert, 2004: 216). Other
definitions describe it as typically an evaluation process in which quantitative scores based on
predetermined criteria are assigned and shared with the employee being evaluated.
Performance appraisal interview is a part of performance appraisal. Torrington et al. (2017: 311)
suggest the following structure for a performance appraisal interview:
1. Set the tone: agree the purpose and structure of the meeting with the appraisee.
2. Review the known facts about performance in previous period.

3. Solicit appraise views: ask appraise to comment on performance since the last appraisal (e.g., what
has gone well and less well, what could be improved, possible new objectives.
4. Provide your own views on the appraiser’s performance.
5. Discuss any differences between the appraiser and appraisee’s views on appraisee’s performance.
6. Agree what actions should be taken and by whom.
How does performance appraisal affect performance? The explanation of causal connection between
appraisal and performance is based on three theories (Chartered Institute of Personnel and
Development, 2016a)
• Social comparison theory suggests that individuals tend to compare themselves with others in
judging their performance. They are concerned not only with their performance in an absolute
sense, but also with how they measure up in relation to relevant peers. When faced with
unfavourable comparative information, individuals have a strong desire to improve their
performance.
• Feedback intervention theory suggests that when confronted with a discrepancy between
what they wish to achieve and the feedback received, individuals are strongly motivated to
achieve a higher level of performance. The practice of performance appraisal therefore
assumes that informing employees of discrepancies between the organization’s standard and
their current performance – implying that they are achieving lower than most other
colleagues – will motivate them to achieve a higher level of performance.
• Equity theory states that employees compare themselves with each other in terms of inputs
and outcomes. High performers, seeing that poor performers get lower appraisal scores – and
consequently receive lower rewards - may feel that an equitable balance is being established
and be motivated to continue their high-quality work, whereas underperformers may be
motivated to put in more effort to achieve a higher level.
3.8.1 Performance appraisal effectiveness
Do performance appraisals ‘work’, i.e. do they lead to performance improvement? The relationship
between performance appraisal and performance outcomes is often complicated, and is contingent
on many moderators and mediators. Therefore, the key question is not, ‘What is the effect of
performance appraisal on workplace performance?’, but ‘Given the target group, the objectives and
the context involved, what are the factors moderating or mediating the effect of performance
appraisal that need to be taken into account?’
We shall examine several factors that impact on the effectiveness of performance appraisal, and
provide recommendations for ameliorating their potentially negative influences.

In particular, we shall look at the purpose of appraisal, perceptions of appraisal and its fairness, and
rating errors and biases. In so doing, we draw on the CIPD (Chartered Institute of Personnel and
Development, 2016c) review of the research literature on the effect of performance appraisal on
workplace performance.
Performance appraisal purpose
Although the primary purpose of performance appraisals is to enhance the performance or

productivity of employees (and thus the organization), most organizations use them for either
administrative or developmental reasons.
• Developmental performance appraisals are used to identify employees’ strengths and

weaknesses and to guide the training, job experiences, mentoring and other developmental
activities that employees will engage in to develop their capabilities.
• Performance appraisals for administrative reasons are used to decide on salary and promotion
issues, to validate selection criteria, to decide on terminations of contracts and redundancies,
or to meet legal requirements.
Although it is theoretically possible to devise a performance management system that serves both
decision-making and development purposes effectively, this may be difficult to achieve in practice.
The evidence clearly undermines the assumption that a single approach to performance appraisal can
be effective for both administrative and developmental purposes. It is simply wishful thinking to use
a single method at one point in time to effect psychologically disparate processes. Conversations
about what we have learned and how we can improve take us mentally to a very different place from
conversations about how our achievements and results will translate into salary bonuses.
Therefore, it is important that employers and HR departments are clear with employees at all levels
about the particular aim of the performance management tools that are in place; and that they set
clear expectations on what sorts of performance discussions should be taking place, and how they will
or will not feed into HR decisions.
To improve performance appraisals, separate developmental appraisal from administrative appraisal.
Perceptions of appraisal
Employees’ reactions to appraisals matter more than the techniques used. For this reason, it is
recommended, as a matter of course, to check in with employees following any performance
conversation, be it a review to inform reward decisions or a future-focused discussion of learning and
development. Many people may not relish extending performance reviews any further, as they are so
often seen as a chore to be got through, a tick-box exercise on which HR insists. If that is the case, it

must change. Performance conversations must be embraced by managers and their reports alike.
They must also be seen as fair and useful by the workers they concern.
Reactions to feedback, rather than the feedback itself, influence performance. The key to these
reactions is in the perceived fairness of the performance appraisal. What, then, affects this
perception?
1. First, it is about the process, not just the outcomes. The perceived fairness of the performance
appraisal process affects perceptions of the fairness of performance appraisal overall. When
procedures for performance appraisal are perceived as fair, reactions are favourable, largely
irrespective of the outcome. This is called the ‘fair process’ or ‘procedural justice’ effect. It affects
both employees’ reactions to feedback and their resulting performance.
2. The rating method or format is also important. The number of categories for rating employee
performance matters: five categories are better than three. Forced-distribution rating systems are
perceived universally as unfair.
3. Negative feedback is perceived as unfair. Feedback that focuses only on positive aspects
contributes to perceived fairness and overall job performance.
4. Participation contributes to perceived fairness and motivation to improve after the appraisal.
Participation is important primarily for the sake of having one’s ‘voice’ heard and not necessarily
for the purpose of influencing the end result.
5. The quality of the relationship between manager and employee contributes to the perceived
fairness of the appraisal – the better the relationship, the greater the perceived fairness.
Appraisal fairness
The recommended best practice for a just (fair) performance appraisal addresses three types of
organizational justice:
• Distributive justice relates to the fairness of the performance appraisal outcomes – whether
the outcomes are distributed based on the principle of equity. (Equity means that you get
what you deserve and you have earned what you receive. Equality means that everyone gets
roughly the same thing.)
• Procedural justice refers to the fairness of procedures used in the performance appraisal
process – whether managers gather and use accurate, objective and relevant performance
data and do so in a consistent manner.
• Interactional justice relates to the way in which appraisees are treated in the performance
appraisal process – whether they are treated with respect and dignity and whether the
appraisers act in a professional, friendly and courteous manner.

When employees experience all three of these types of justice in the performance appraisal process,
they are more likely to perceive it as fair.
The following are the “best practice” recommendations for making performance appraisals fair
(Posthuma and Campion, 2008).
1. Design
1.1. The content of the performance appraisal should be based on a job analysis.
1.2. Current job incumbents should have input on the factors to be evaluated in the appraisal.
1.3. The appraisal should be (a) based on observable job behaviors and (b) specific rather than
global.
1.4. The appraisal should be standardized and reliable.
2. Relevance 2.1. The performance appraisal should compare employees doing the same or similar
work. 2.2. Objective performance data should be considered to the extent possible. 2.3. The
appraisal should be aligned with the business goals and objectives.
3. Timing
3.1. The appraisal should be conducted close to the time when the results will be used for
personnel decisions.
3.2. Reviewers should have the opportunity to frequently observe employees’ job performance.
3.3. The appraisal ratings should be spread over appropriate intervals, not too frequent or rare.
4. Independent review
4.1. A higher authority should evaluate the appraisal’s results, or multiple evaluators should be
used.
4.2. An appeal mechanism should be allowed.
4.3. The appraisal process and results should be documented.
5. Guidance
5.1. Reviewers should be given specific and clear instructions on procedures.
5.2. Reviewers should be trained in how to administer the appraisal.
6. Communication
6.1. Appraisal results should be discussed with employees.
6.2. The policies on the conduct and uses of the appraisal results should be communicated to
employees.
6.3. Performance expectations should be clearly communicated with employees.
6.4. Employees should actively participate in the appraisal.
6.5. The appraisal should be developmental (e.g. indicate how to improve).

Reducing errors and biases in appraisals
If performance appraisals are to improve individual performance and organizational outcomes, it is

essential that performance ratings are accurate and unbiased. However, a substantial body of
research demonstrates that the accuracy of performance ratings may be influenced by many different
factors, resulting in poorquality ratings, and affecting the reliability and validity of performance
appraisal (Chartered Institute of Personnel and Development, 2016c).
The errors and biases include gender bias (male raters favour male rates) and racial bias (white raters
assign higher ratings to white rates, while; black raters assign higher ratings to black ratees).
Managers, who believe that personal attributes are fixed, tend to give lower ratings for good
performance when their employees have previously been given a negative performance rating. Such
managers tend to pay less attention to the actual performance of an employee once they have formed
an impression. Conversely, managers who implicitly believe that people (their personal attributes) can
change or develop tend to give higher ratings for good performance when their employees have
previously been given a negative performance rating, suggesting that they base the grading on a more
conscientious consideration of the performance (instead of their initial impression). This finding
explains why some managers acknowledge an improvement in an employee’s performance more than
others (large effect). Managers who receive positive feedback about their performance subsequently
rate their employees significantly higher than managers who receive negative feedback regarding
their own performance. Surprisingly, this effect even occurred when managers knew their own
evaluation was bogus (large effect). Employees hired or recommended by the manager receive higher
ratings (large effect). Managers (and raters generally) tend to evaluate those they like substantially
more positively than those they dislike (small to moderate effect).
An employee’s organizational citizenship behaviors influence the perception of their overall job
performance and, as a result, boosts performance ratings. Employees who voluntarily help others with
work-related problems, make constructive suggestions to improve the efficiency of work processes,
or co-operate with others to serve the interests of the organization therefore tend to receive
substantially higher performance ratings. Ratees also try to influence raters, and use various tactics
such as ingratiation (flattery and carrying out favours in order to enhance managerial liking) and self-
promotion (appearing competent on the job and making managers aware of one’s performance). Both
significantly affect performance ratings (moderate effect).
Since ratings are notoriously prone to errors and biases, it is tempting to think that one might do away
completely with subjective ratings. However, objective performance scores based on actual outputs
or impacts are often impractical or simply too difficult to design. It is more sensible to ask how one
might make subjective scores more reliable.
Evidence-based recommendations for improving the quality of ratings (CIPD, 2016) include:

• Using composite ratings. Subjective ratings are more accurate when composite scores are
used. Thus, it is better to base employee ratings on averages of multiple-item indicators,
rather than apply an overall rating.
• Using multiple ratings. Ratings based on a consensus of multiple raters reflect actual
performance more accurately than individually applied ratings.
• Making raters accountable. Appraisal ratings are more accurate and reliable when the raters
are more accountable for their judgements. However, the accountability may also affect the
ratings. For example, raters’ whose judgements are to be checked by an expert will give
substantially lower ratings. On the other hand, when managers have to justify their ratings in
face-to-face meetings with employees, their ratings are much more positive, probably
because they want to avoid confrontation.
• Training the raters. Training managers in performance assessment may lead to far more
accurate ratings. The most effective types are: (a) frame-of-reference training, in which
managers are taught to reduce idiosyncrasies in the ratings they give by comparing employees
with set standards; and (b) behavioral observation training, which teaches assessors to
observe and recall, rather than evaluate or judge, employees’ behavior.
Some researchers go further. Cary and Munjal (2016) recommend positioning performance
management as a central part of a manager’s job and including performance management in
managers’ evaluations, thus highlighting its importance.
3.8.2 Getting rid of ratings?
The business press has recently reverberated with cheers about the end of performance reviews.
‘Performance reviews are getting sacked’, reported the BBC. They ‘will soon be over for all of us’,
rejoiced the Financial Times. Several big companies have announced that they have abandoned or are
abandoning annual performance reviews, including Accenture, Adobe, Deloitte, GE, IBM, Microsoft
and Netflix. Only two questions remain to be answered: first, when will you join the throng that has
‘reinvented’ performance management; and second, why is it taking you so long?
However, the headlines often exaggerate, and the suggested revolution is nothing like as great in
reality. As The Economist puts it, companies ‘are no more getting rid of performance reviews than a
person who shifts from drinking whisky to wine is becoming teetotal’. Employee reviews are being
modified, not abolished – and not necessarily for the better.
Four changes are proving particularly popular:
1. Companies are getting rid of forced rankings – and the softer version, guided distributions – in
rating people’s performance. These are epitomised at the extreme in the ‘rank and yank’ approach
to firing the bottom 10 per cent of performers every year. They also exist in the more common
practice of setting targets for the proportion of employees to be rated ‘must improve’,

‘satisfactory’, ‘good’, and so on. General Electric, a one-time proponent of ‘rank and yank’, has
reportedly removed any form of numerical performance rating in favour of frequent, multi-source
feedback through an app.
2. Annual reviews are being replaced with more frequent ones – quarterly, or even weekly. For
example, Accenture has initiated a ‘continuous feedback’ culture, and Expedia has created a
system of regular ‘check-ins’ designed to be more coaching-oriented.
3. Pay reviews and performance reviews are being separated.
4. Some performance reviews are turning into performance ‘previews’, focusing more on
discovering and developing employees’ potential than on rating their past work.
Is this new system of employee reviews any better than the old? There are good arguments for getting
rid of ranking and yanking: ritualistic decimation of the workforce on the basis of a single number has
routinely paralysed businesses in the run-up to each year’s reviews, killing creativity and setting
workers against each other. However, the picture is far from clear.
A recent journal article (Adler et al., 2016) co-authored by academics and HR professionals, provides
a comprehensive statement of the arguments on both sides.
Arguments in favour of abandoning performance ratings
Some of the arguments being advanced for new-style reviews are a fuss about nothing. Deloitte says
its new system is about ‘speed, agility, one-size-fits-one and constant learning’, and the consulting
firm’s employees sit down once a week with their team leaders. However, good managers should give
their charges constant feedback anyway, so adding another regular meeting to everyone’s calendar
sounds like a formula for time-wasting. ‘One-size-fits-one’ assessment is meaningless: a vital part of
assessing people is measuring them against their peers, particularly when thinking about who to
promote or how to share out bonuses. It sounds nice to focus on people’s potential rather than on
their past performance, but how do you assess the former without considering the latter? And if
decisions about pay are not based on performance, what should they be based on?
Some of these arguments are not only a fuss about nothing, but are dangerous. Social scientists have
repeatedly demonstrated that performance reviews are distorted by two things: office politics and
grade inflation. Managers are susceptible to lobbying. They also have an incentive to put a positive
spin on things, often against their own better judgment, because in assessing their subordinates’
performance they are, to a large extent, evaluating their own ability to manage. Managers who deliver
a series of damning verdicts on their teams inevitably raise red flags about their own leadership.
However, the more subjective the reviewing process becomes, the more powerful these distortions

are likely to be: ‘instant’ feedback sessions may easily become orgies of mutual praise that fail to teach
anybody anything.
For purists, this is proof that performance reviews are unsalvageable: better to get rid of them entirely
than to replace one imperfect system with another.
Arguments against abandoning the rating
There are good reasons why almost all organizations use employee reviews of one type or another.
Companies are constantly making difficult decisions, whether allocating limited resources (such as
promotions and bonuses) or sacking people who are holding the organization back or in a market
downturn. It is preferable to make such decisions on the basis of robust criteria rather than on a
managerial whim. Increasingly, firms must also defend themselves in court against people who feel
hard done by.
Firms that embrace more touchy-feely assessment systems, let alone get rid of assessment entirely,
may be setting themselves up for legal nightmares. Annual performance reviews can certainly be
improved. Companies need to put more effort into guarding the guards, training them in how to
conduct reviews and holding them accountable if they are over-generous or otherwise sloppy. Google
wisely encourages its managers to review each other’s assessments. Bosses must also be more
rigorous in acting on what they discover: there is no point in amassing information about weak
performers if you only act on it in a crisis.
However, provided they are carried out consistently, rationally and fairly, and supplemented with
more frequent feedback, annual performance reviews have many virtues. They provide a way of
measuring an employee’s development over time. (Oddly, some of those who criticise annual
feedback for being too slow also criticise companies for short-termism.) Annual reviews also provide
a way of measuring all of a company’s employees against each other, rather than just their immediate
colleagues. Bill Clinton once said that the best approach to affirmative action is ‘mend it, don’t end it’.
The same is true of annual performance reviews.
Before you abandon the ratings …
For those of you who may be considering a performance management reform in your work
organization, here is a set of questions that you should answer before you proceed (Adler et al. 2016):
• What business problem(s) are we trying to solve: drive organizational strategy? Reduce
unnecessary process and costs? Increase engagement and performance? use formal
evaluations to justify differential decisions?
• What do we want to evaluate and reward: individual or team performance or both? behaviors,
outcomes, both, or other?
• How do we view our employees, and how much do we need to compete for talent?

• What proportion of an employee’s total compensation do we put at risk?
• How much do we really rely on ratings for decision making? In particular, how much do our
ratings actually align with our decisions? Do we need a number to make decisions? Why or
why not?
• How mature and ready is our organization to remove formal performance management steps
and process.
• How effective are we at the daily behaviors that drive performance?
• Are the answers the same for all units, jobs, and work in the organization?
• Improving performance appraisals.
• How do you improve performance appraisals? The key recommendations are:
• Set shorter performance appraisal cycles.
• Separate performance and developmental appraisal.
• Focus on the future performance rather than the review of past performance.
• If you use ratings, use composite scores and multiple raters (e.g., consider using 360 degrees
feedback).
• Train both the raters and the ratees.
• Make the raters accountable. If they don’t provide proper performance appraisal, then the
appraisal of their performance should account for that as well.
3.9 Performance feedback
Most formal performance management systems mandate midyear and year-end reviews to provide
feedback on what has occurred during the rating period. During these meetings, managers discuss
their evaluations and the rationales for them with employee. However, to be effective, feedback
needs to be provided regularly when it makes sense to do so, not only once or twice a year during
formal reviews.
Feedback needs to be provided on an ongoing basis. In addition to providing feedback whenever

exceptional or ineffective performance is observed, providing periodic feedback about day-to-day
accomplishments and contributions is also very valuable.
Research has consistently shown the importance of regular feedback for effective performance
management, and job attitudes. Continuous feedback is the most valuable type. If feedback is
provided immediately following good or poor performance, it helps employees make real-time
alterations in their behavior and enables them to perform their work more efficiently.
Many managers and employees naturally engage in informal feedback, such as discussing how a
presentation went, but these discussions tend to be more intuitive than intentional, and they are
often not recognised as feedback events.

Understanding the value of informal feedback and recognising opportunities for it helps managers and
employees take advantage of “teachable moments.” These moments are learning opportunities that
occur as part of day-to-day work.
Unfortunately, this does not happen to the extent that it should, because many managers are not
skilled in providing feedback. In fact, managers frequently avoid providing feedback because they do
not know how to deliver it productively in ways that will minimize employee defensiveness. Managers
are reluctant to provide candid feedback and have honest discussions with employees for fear of
reprisal or damaging relationships with the very individuals they count on to get work done. Even
when managers do provide feedback, it is often superficial and of little value.
3.9.1 Developing feedback skills
Giving feedback is a skill that can be learnt. Here, we provide the evidence-based recommendations
on how to provide effective feedback. The recommendations are based on a ‘strengths-based’
approach to feedback (Aguinis et al., 2012), which contrasts with the traditional ‘weaknesses-based’
approach.
Weaknesses-Based Approach to Feedback
Typical feedback focuses on weaknesses: managers identify their employees’ weaknesses (e.g.
deficiencies in terms of their job performance, knowledge and skills); provide negative feedback on
what the employees are doing wrong or what the employees did not accomplish; and, finally, ask them
to improve their behaviors or results by overcoming their weaknesses.
The rationale for weaknesses-based feedback is that weaknesses are areas where employees have the
potential to improve, and it is assumed that informing them of their problems will motivate them to
improve. However, such feedback has negative consequences:
• It leads to employee dissatisfaction, defensive reactions, less desire to improve and less actual
improvement in individual performance.
• It is perceived as inaccurate, and is unlikely to be accepted by the person receiving it. These
negative consequences help explain why many managers have not experienced significant
success in using negative feedback to boost employee performance. An alternative to the
weaknesses-based approach is the strengths-based approach to feedback.
Strengths-Based Approach to Feedback
• Under this approach, managers identify their employees’ strengths in terms of exceptional
job performance and KSAOs; provide positive feedback on what the employees are doing to

succeed based on these strengths; and, finally, ask them to maintain or improve their
behaviors or results by making continued or more intensive use of their strengths.
• The reasons for strengths-based feedback are that employee strengths offer potential for
growth and development, and that highlighting how these strengths may generate success in
the job motivates employees to use their strengths more intensively to produce even more
positive behaviors and results. In contrast to weaknesses-based feedback, strengths-based
feedback has a significant number of advantages with few, if any, negative consequences.
• It enhances individual wellbeing and engagement.
• It tends to increase employees’ desire to improve their productivity and heightens actual
productivity.
• Employees experience greater job satisfaction, perceptions of fairness and motivation to
improve job performance.
• Those giving the feedback generally adopt negative views of and attitudes toward the
employees being evaluated.
Aguinis et al. (2012) offer several research-based recommendations on how to deliver feedback
focusing on a strengths-based approach. We summarise them here.
• Identify strengths and provide positive feedback on how employees are using their strengths
to exhibit desirable behaviors and achieve beneficial results. Ask them to maintain or improve
their behaviors or results by using their strengths.
• Do not completely abandon discussion of weaknesses. However, concentrate on employees’
knowledge and skills, rather than on their abilities and personality. Knowledge and skills can
be learned and improved, while abilities and personality are inherent and considerably less
mutable. If weaknesses do stem from abilities and personality, encourage employees to see
how their strongest talents can compensate for their talent weaknesses. Alternatively, assign
them to work with partners who possess these talents, to compensate. You may also redesign
employees’ jobs to match their strengths – or reassign an employee to a job with a better fit.
• Give feedback in a private setting.
• Deliver the feedback in a considerate manner. Start the feedback session by asking the
employee what is working. Provide at least three pieces of positive feedback for every piece
of negative feedback. Allow employees to participate in the feedback process.
• Provide feedback that is based on concrete evidence and is specific and accurate. Avoid
making general statements such as ‘Good job!’.
• Tie feedback to important consequences at various levels throughout the organization.
Explain how the employee’s behaviors and results affect the team, the unit or the entire
organization.
• Provide specific directions by including a development plan and checking up on any progress
made after a certain period of time.
• Make feedback a two-way communication process and the joint responsibility of managers
and employees, not just the managers. Therefore, provide training for both those who provide
and those who receive feedback.

3.9.2 Building trust for effective feedback
The effectiveness of the feedback process, informal or formal, is contingent on the manager–
employee relationship. In fact, the strength of the relationship between managers and employees
influences employee job satisfaction, organizational citizenship, engagement and performance. Trust
is a key element of the quality of this relationship and an essential prerequisite for effective feedback
and coaching. While some managers naturally create trusting relationships with employees, attitude
surveys reveal that many employees have very poor relationships with their managers and do not
trust them.
Trust can be developed between managers and employees by training managers to engage in trust-
building behaviors.
Practice-Based Recommendations
The following recommendations for building a trusting relationship are commonly found in the
practitioner’s literature:
• Make realistic commitments (‘don’t promise the moon’).

• Follow through on promises (‘keep your word’).
• Keep others informed (‘don’t keep secrets’).
• Show support and avoid blame.
• Share information.
• Protect those not present (‘don’t talk behind their backs’).
Research-Based Recommendations
A meta-analysis of studies on supervisor–subordinate trust (Nienaber et al., 2015) shows that the
following characteristics and behavior of supervisors help to establish trusting relationships between
supervisors and subordinates.
• Benevolence: supervisor takes into account subordinates’ needs and wellbeing.

• Competence: supervisor has relevant knowledge and qualifications.
• Justice: supervisor maintains distributive, procedural and interactional justice.
• Predictability: supervisor’s actions are predictable.
• Consistency: Supervisor’s behavior matches the organizational values.
• Honesty.
• Loyalty toward subordinates.
• Support: supervisor encourages and coaches subordinates.

3.10 De-formalising performance management
The US-based Society for Human Resource Management (SHRM) (Pulakos et al., 2012) recently-issued
Effective Practice Guidelines for Performance Management, offering ‘a fresh look at performance
management’. These Guidelines are intended to create a ‘new mindset about performance
management’. The authors suggest that ‘one way to begin to shift mindsets is to remind people that
they engage in performance management behavior every day with their children, spouses, coworkers,
friends and vendors’. Once people make this connection, they can better grasp the meaning of
performance management in the workplace. The general spirit of the Guidelines is to make
performance management less formalistic and burdensome, and more friendly, efficient and
effective.
How do you ‘de-formalise’ performance management? Some of the Guidelines’ suggestions concur
with the research- and practice-based recommendations for goal setting, performance appraisal and
feedback presented earlier in this unit. Here, we summarise suggestions that complement and go
beyond these recommendations:
3.10.1 Communicate the big picture
Leaders must be able to describe how the work of each employee relates to the company’s overall
mission. Employees who understand the big picture and deliver work that meets expectations are able
to operate more independently and effectively, freeing managers to grow the group, implement
strategy or take on higher-level responsibilities. Once managers and employees understand these
benefits, they will be motivated to pursue them, rather than seeing performance management as a
burdensome administrative drill.
One strategy to communicate the big picture is to cascade goals from the top of the organization
through each level until they reach individual employees. Theoretically, this approach enables
employees to see how their work fits into the organization’s mission and priorities. However, in
practice, this is difficult and time-consuming.
An alternative to cascading goals is for managers to provide a plain-language description of how the
team and each employee contribute to the overall mission.

3.10.2 Streamline the administrative requirements
To scale back the current formal systems,
• Use the smallest number of rating factors possible to cover the job requirements: try to limit
these to three or four (e.g., technical performance, teamwork and initiative).
• Simplify rating scales: use a three-point rather than five- or seven-point scales.
• Reduce or eliminate requirements for narratives.
If policy dictates that a rating record is needed, then implement the least burdensome requirements
that will meet the organization’s needs, as this will minimize the effort associated with making formal
ratings that add little practical value.
3.10.3 Develop others through experience
Training and development is the subject of a separate section in this module. However, it is worth
mentioning the issue of development here, as it is an important element in the quest to de-formalise
performance management.
In most formal performance management systems, the year-end review is used as an opportunity to
plan the employee’s development for the upcoming year. However, development should be ongoing
and in real time as learning opportunities arise, not restricted to one or two formal sit-down
discussions yearly. Because identifying development areas is easier than knowing how to address
them, managers and employees are often provided with ‘development guides’, which suggest formal
training and other resources, such as books or websites, targeted at different competencies. At the
year-end review, managers and employees usually select one or two competencies toward which the
employee will direct development effort, typically by engaging in some type of formal training.
What many managers and employees do not realise is that employees usually gain the most learning
and development by engaging in readily-available, day-to-day job experiences. In fact, 80 to 90 per
cent of learning occurs on the job. For example, if employees need to improve their briefing or
customer service skills, they should be given many opportunities to practise and acquire these skills
on the job.
However, when allocating work, managers often neglect to think about which employees need
particular experiences, and instead assign work to employees who are already highly skilled. Assigning
tasks to those who can clearly accomplish them presents less risk and potential for redoing work, but
this strategy is short-sighted. Failing to take opportunities to develop employees’ skills leaves
managers with fewer staff members who can perform the full array of job tasks effectively.

The most beneficial approach to development is for managers and employees to look continually for
opportunities that will help enhance skills to enable employees to contribute more fully. Development
as a continuous process helps employees acquire the experience they need, and also encourages a
development-oriented mindset, so that acquiring experience and enhancing skills become an integral
part of day-to-day work.
3.11 New thinking in performance management
Both researchers and practitioners are arguing for the adoption of a “new thinking” in performance
management, summarised in the following table in contrast to the “old thinking” (SHRM, 2012)
Old and new thinking in performance management
Source: Based on Pulakos et al. (2012)
It would be unwise, to say the least, to take for granted that performance appraisals will lead to
improvements. There are too many things that can go wrong. Yet on the other hand, it is equally
misguided to say that they never work and should simply be abolished.
If by ‘appraisals’ we mean some box-ticking annual process that tries to do too many things and ends
up causing fear and resentment, then yes, we need to replace that with a better approach ... But

appraising performance is part of a wider chain of actions, which starts with setting goals and takes in
monitoring progress, learning and development, assessing performance and giving feedback. This is a
very worthwhile process.
It is also worth spending the additional effort to get goal setting and performance appraisal right.
Optimising goal setting can make the difference between focusing employees in a way that really
contributes to performance, or acting as a serious distraction from it. In the case of feedback or
appraisal, ‘getting it right’ makes the difference between a positive impact, no impact or a negative
impact on performance.
There is no single answer to the question of how to manage performance (if there were, we surely
would have hit upon it by now). But there are a number of practical things that can be done and we
hope that this section has given you some pointers that are useful and authoritative.
3.12 TAKEAWAYS
1. Employee performance is a function of ability (KSAOs), motivation and opportunity. As such, it

falls under three HRM policy domains: ability (recruitment, selection, and learning, training and
development); motivation and effort (performance and reward management), and opportunities
to contribute (job design and employee involvement). Performance thus represent the outcomes
of HRM policies and practices in all 3 domains, rather than solely of performance management.
2. Performance management is a continuous process of identifying, measuring, and developing the

performance of individuals and teams and aligning performance with the strategic goals of the
organization. Performance appraisal is only a part of performance management process.
3. To be effective, an organization’s performance management system must be congruent with

organizational strategy and must provide a “line of sight”, i.e. a clear link between individual, unit
and organizational goals.
4. Performance management cycle consists of four steps: (1) define performance, (2) evaluate
performance, (3) review performance and (4) provide performance consequences.
5. Goal setting is the process of consciously deciding goals that an individual, a group or an
organization want to accomplish within a particular timeframe. A specific challenging goal leads
to higher performance than a vague or an easy goal. To obtain a performance-enhancing effect of
a specific and challenging goal, the person must have the ability and the resources to attain the
goal, be committed to the goal and receive feedback on progress toward goal attainment.
6. Performance goals should be set for simple tasks that are straightforward to perform and have
quantifiable outcomes. Behavioral goals should be set for complex tasks and for outcomes that

are not easily quantifiable. Learning goals should be assigned when individuals have yet to master
the task. For new tasks, a timeframe for goals should be shorter; for familiar tasks it can be longer.
7. Performance appraisal is the formal evaluation of an employee’s job performance in order to

determine the degree to which the employee is performing effectively. Best practice
recommendations for fair and effective performance appraisals suggest that the appraisal’s
content should be based on job analysis, into which current job incumbents should have an input,
and focus on specific and observable job behaviors and/or objective performance data. The
appraisal should be standardised, reliable, and aligned with the business goals. It should be
conducted close to the time when the results will be used for personnel decisions and should be
spread over appropriate intervals (not too frequent, not to rare). It should use multiple evaluators.
The appraisal’s expectations should be clearly communicated and both the process and results
should be documented. There should be an appeal mechanisms. Both appraisers and appraised
should be trained in how to conduct/participate in an appraisal. Developmental appraisal should
be separate from administrative appraisal.
8. Performance ratings are open to biases; and some organizations are experimenting with
abolishing performance ratings. To improve the quality of performance ratings, it is recommended
to use multiple raters and composite ratings, training the raters, and making them accountable.
9. Performance feedback should not be limited to formal performance appraisal meetings, but be
provided on an ongoing basis.
10. To provide effective feedback, it is recommended to use a strength-based approach. Identify

strengths and provide positive feedback on how employees are using their strengths. When
discussing weaknesses, concentrate on knowledge and skills rather than on abilities and
personality. Encourage employee to see how their talents can compensate for their weaknesses.
Give feedback based on concrete evidence. Deliver feedback in private and in a considerate
manner. Provide specific recommendations for improvement (in a development plan).
Note: Please remember also to review Takeaways provided in the textbook Chapter 2, 6, and 7.
Section 4: Job satisfaction and work design
• explain the meaning of job satisfaction

• identify the factors that contribute to job satisfaction
• explain how job satisfaction affects work performance and organizational commitment
• identify the ways in which job satisfaction can be assessed and influenced
• identify the key characteristics of job/work design
• identify how characteristics of job design affect motivation and contribute to various work
outcomes including performance and job satisfaction
• consider how personality affects individual dispositions and how to take this into account
when redesigning jobs or assigning individuals to jobs.
4.2 Linked readings
Organizational Behavior, Chapter 4 Job Satisfaction
4.3 Defining job satisfaction
Do you love your job? Why do you love your job? And does it matter? Organizational behavior has a
concept that captures whether you love or loathe your job. This concept is job satisfaction. We define
job satisfaction as an evaluative state that expresses your contentment with your job and your positive
feelings about the job.
Job satisfaction can be measured overall – as a global attitude to one’s job. Alternatively, it can be
decomposed into five facets:
1. satisfaction with work,
2. satisfaction with supervision,
3. satisfaction with co-workers,
4. satisfaction with pay, and
5. satisfaction with promotions.

4.4 Defining work design
Take a practical managerial challenge: you want to increase your employees’ motivation and job
satisfaction. You know that the job itself has a lot to do with it: people who enjoy what they do perform
better. You know that some jobs are more interesting, engaging, and enjoyable. You want to improve
a particular job – make more motivating and satisfying. How would you go about it? What you need
is a tool that can help you to:
• diagnose the job, i.e. assess which aspects of the job are satisfying and motivating and which
are not; and
• redesign the job, i.e. change the characteristics of the job to improve their motivational
properties.
Such tool exists. It is called Work Design Model. In this section we will introduce you to the area of
research and practice known as work design and present (and give you an opportunity to practise) the
Work Design Model.
Job design, or work design (as it is now commonly known), concerns the content and organization of
one’s work tasks, activities, relationships and responsibilities (Parker 2014: 662).
Work design research covers topics such as multi-skilling, job enrichment, selfmanaging teams and
virtual work. The focus of research and practice of job design is to understand how work design
affects:
• individual outcomes such as job satisfaction and health;

• team outcomes such as team adaptivity; and
• organizational outcomes such as productivity (Parker and Carpini, 2016).

4.5 Work design: A bit of history
Work design has a long history. As early as 1776, Adam Smith advocated the decomposition of
complex jobs into simpler parts. Frederick Taylor expanded on this notion in his principles of scientific
management, according to which jobs were simplified into sets of narrow tasks with minimal
discretion over task execution. Job simplification generated considerable efficiencies, but also
produced negative effects on employees’ mental health and job satisfaction.
So, from the 1920s onwards researchers have been searching for the ways to design the jobs that
would be more engaging and satisfying. In the 1970s Hackman and Oldham (1976) summarised these
developments in their Job Characteristics Model.
The Job Characteristics Model identifies five characteristics that make a job more motivating:
1. Skill variety, i.e. the degree to which the job requires different skills and talents.
2. Task identity, i.e. the extent to which the job allows the person to complete a whole piece of work.
3. Task significance, i.e. the degree to which the job affects other people in a meaningful way.
4. Autonomy, i.e. the degree of freedom, independence, and discretion an individual has in
completing and scheduling tasks.
5. Job-based feedback, i.e. the extent to which the individual receives clear information regarding
his/her performance from the job itself.
The Job Characteristics Model has been largely supported by research. However, with the advent of
21st century and considerable changes in the world of work, the model has been deemed too narrow.
Consequently, Morgeson and Humphrey (2006) have expanded it into the Work Design Model.
The Work Design Model identifies 21 characteristics of a job and groups these into four categories:
1. The task characteristics, which describe the activities that a job incumbent performs.
2. The knowledge characteristics, which reflect the cognitive and skill requirements of the job.
3. The social characteristics, which reflect the fact that work is performed within a broader social
environment and that interpersonal and social aspects of work are very important for job
incumbents.
4. The work context characteristics, which reflect the physical work conditions.

(You may notices the echoes of work analysis in this description.)
The first two categories – task characteristics and knowledge characteristics – are called motivational
characteristics. The basic principle is that jobs will be enriched (that is, made more motivating and
satisfying) if high levels of these characteristics are present.
In turn, social characteristics reflect the fact that work is performed within a broader social
environment. Finally, work context reflects the physical and environmental contexts, in which work is
performed.
We will introduce each category and characteristic in more detail (based on the Work Design
Questionnaire).
4.6 Work design model
4.6.1 1. Task characteristics
There are seven task characteristics that reflect how the work is accomplished and the range and
nature of tasks associated with a particular job.
1.1-1.3 Autonomy is the most widely studied work characteristic. You may remember that Self-
determination theory identifies autonomy as one of its three key ingredients of motivation. Autonomy
is the amount of freedom and independence an individual has in terms of carrying out his or her work
assignment. It reflects the extent to which a job allows discretion to schedule work, make decisions,
and choose the methods used to perform tasks. For instance, can you make your own decisions the
order in which you do things? Can you use your personal initiative or judgement in carrying out work?
It is, indeed, so important that there are three task characteristics associated with autonomy:
• Work scheduling autonomy

• Decision making autonomy
• Work methods autonomy.
1.4. Task variety refers to the degree to which a job requires employees to perform a wide range of
tasks on the job. Jobs that involve the performance of a number of different work activities are likely
to be more interesting and enjoyable to perform.
1.5. Task significance reflects the degree to which a job influences the lives or work of others, whether
inside or outside the organization. People in jobs that have a significant effect on the physical or
psychological well-being of others are likely to experience greater meaningfulness in the work.

1.6. Task identity reflects the degree to which a job involves a whole piece of work, the results of
which can be easily identified. Jobs that involve an intact task, such as providing a complete unit of
service or putting together an entire product, are invariably more interesting to perform than jobs
that involve only small parts of the task.
1.7. Feedback from job reflects the degree to which the job provides direct and clear information
about the effectiveness of task performance. The focus here is on feedback directly from the job itself
or from the knowledge of one’s own work activities, as opposed to feedback from others.
4.6.2 2. Knowledge characteristics
Knowledge characteristics reflect the kinds of knowledge, skill, and ability demands that work places
on an individual as a function of what is done on the job. Distinguishing task from knowledge
characteristics acknowledges the fact that jobs can be designed or redesigned to increase the task
demands, knowledge demands, or both
2.1. Job complexity refers to the extent to which the tasks on a job are complex and difficult to
perform. Work that involves complex tasks requires the use of numerous high-level skills and is more
mentally demanding and challenging. Therefore it is likely to be more motivating
2.2. Information processing reflects the degree to which a job requires attending to and processing
data or other information. Some jobs require higher levels of monitoring and active information
processing than others. The higher the cognitive demands associated with information processing,
the more motivating is the job
2.3. Problem solving reflects the degree to which a job requires unique ideas or solutions, diagnosing
and solving non-routine problems, and preventing or recovering from errors. As such, it is conceptually
related to the creativity demands of work; and, again, the more problem solving the job requires the
more interesting, engaging and motivating it is considered to be.
2.4. Skill variety reflects the extent to which a job requires an individual to use a variety of different
skills to complete the work. It is important to distinguish skill variety from task variety because the
use of multiple skills is distinct from the performance of multiple tasks. The use of multiple skills is
often challenging and it makes the job more engaging to perform. And, finally …
2.5. Specialization reflects the extent to which a job involves performing specialized tasks or
possessing specialized knowledge and skill. As opposed to the breadth of activities and skills inherent
in task and skill variety, specialization reflects a depth of knowledge and skill in a particular area.

4.6.3 3. Social characteristics
3.1. Social support reflects the degree to which a job provides opportunities for advice and assistance
from others. This includes both supervisor and co-worker social support and the friendship
opportunities at work. Social support is critical for well-being, particularly for jobs that are stressful or
lack other motivational work characteristics.
3.2. Interdependence reflects the degree to which the job depends on others and others depend on
it to complete the work. Interdependence reflects the “connectedness” of jobs to each other. There
are two distinct forms of interdependence: (a) the extent to which work flows from one job to other
jobs (initiated interdependence) and (b) the extent to which a job is affected by work from other jobs
(received interdependence).
3.3. Interaction outside the organization reflects the extent to which the job requires employees to
interact and communicate with individuals external to the organization. This interaction could take
place with suppliers, customers, or any other external entity.
3.4. Feedback from others reflects the degree to which others in the organization provide information
about performance. In particular, co-workers and supervisors are two potentially important sources
of feedback. Similar to the task and knowledge characteristics of the job, “more is better” is also the
principle with social characteristics: For instance, the more you have of social support, the more
feedback you get, the more interactions you have with people within or outside your organizations →
the more enjoyable, satisfying and motivating would be the job.
4.6.4 4. Work context
Finally, there are the characteristics of the work context. This is the only category where “more” is not
necessarily “better”. Work context is primarily about how comfortable your work place is.
4.1. Ergonomics in particular reflects the degree to which a job allows correct or appropriate posture
and movement. The importance of this aspect of work design can be found in the extensive
ergonomics literature.
4.2. Physical demands reflect the level of physical activity or effort required in the job. They cover
physical strength, endurance, effort, and activity aspects of the job.
4.3. Work conditions reflect the environment within which a job is performed. They include things
like: How noisy is the work place? How comfortable is the work place in terms of temperature and
humidity? How high are the risks of accident in the job? How clean is the work environment?

4.4. Equipment use reflects the variety and complexity of the technology and equipment used in a
job.
4.7 Motivational work design in practice
4.7.1 More characteristics, more choices
The Work Design Model uses 21 characteristics to describe a job. Why bother with so many? Does
more mean better? In the case of work design, the answer is, emphatically, a ‘yes’: more
characteristics does mean a better choice.
When designing or redesigning a job, your decision is constrained by the number of characteristics
you consider. If you consider only a few characteristics (e.g. autonomy and variety), then your design
decisions will be highly restricted. If you consider a more comprehensive set of characteristics (e.g.
autonomy, variety, social support and physical demands), you can make more fine-grained changes
to work. More choices give you more options.
More choices mean more ways to increase job satisfaction and intrinsic motivation. Certain jobs may
already be high on one of the motivational characteristics, and therefore additional increases in that
area may simply be unfeasible. Your ability to find a different option depends on how wide is the range
of job characteristics you are considering.
More choices also mean more ways to work around potential problems. A common problem with
redesigning the existing jobs is that some changes are impossible to make. For example, increasing
information processing or task variety is a good idea in principle, but in the context of an already
complex job it may produce job overload. What would you do? A model with a broad range of
characteristics gives you other possibilities to consider. For instance, instead of increasing task variety
you could try increasing specialisation or social support.
4.7.2 How do job characteristics motivate?
Why do the job characteristics identified in the Word Design Model motivate?
A theoretical explanation suggests that these characteristics impact behavior through their influence
on three critical psychological states:
1. Experienced meaningfulness (i.e. the degree to which an employee feels the job has value and
importance).

2. Experienced responsibility (i.e. the degree to which an employee feels liable and accountable for
job results).
3. Knowledge of results (i.e. the degree to which the employee is aware of his or her level of
performance).
A “plain English” explanation suggests that these job characteristics affect the extent to which a job is
experienced as ‘boring’ or ‘interesting’, ‘dull’ or ‘enjoyable’, ‘routine’ or ‘challenging’, and so forth.
Here are some explanations as to why particular aspects of a job may make it more motivations.
Would you agree with these explanations?
• Autonomy. The jobs that allow more freedom and independence to schedule work, make
decisions, and choose the methods used to perform tasks are more enjoyable.
• Task variety. Jobs that involve the performance of a number of different work activities are
likely to be more interesting and enjoyable to perform.
• Task significance. People in jobs that have a significant effect on the physical or psychological
well-being of others are likely to experience greater meaningfulness in the work – and to enjoy
their job more.
• Task identity. Jobs that involve an intact task, such as providing a complete unit of service or
putting together an entire product, are invariably more interesting to perform than jobs that
involve only small parts of the task.
• Job complexity. Work that involves complex tasks requires the use of numerous high-level
skills and is more mentally demanding and challenging is also more interesting and fulfilling.
• Skill variety. Using multiple skills is more challenging than using only a few skills and is
therefore more engaging.
4.7.3 Impact of work design: research evidence
How significant is the impact of work design on work-related outcomes? The results of meta-analysis
by Humphrey et al. (2007) covering 259 studies and 219,625 participants, show the following:
Work design affects not only job satisfaction and work motivation, but also many other significant
outcomes, such as job performance, stress, organizational commitment and absenteeism.
Out of the 21 work characteristics in the Work Design Model, 14 characteristics explain, on average,
43% of the variance in various worker attitudes and behaviors. More specifically:
• Task and knowledge characteristics are particularly good in predicting job satisfaction
(explaining 34% of variance in job satisfaction), subjectively evaluated performance (25%),
and organizational commitment (24%).

• Social characteristics are particularly good at explaining organizational commitment, turnover
intentions, and job satisfaction. They explain the incremental variance (i.e. the variance over
and above that explained by task and knowledge characteristics) of 40% in organizational
commitment, 24% in turnover intentions, and 17% in job satisfaction.
• Work context characteristics are particularly good at explaining stress: they explain 16% of
incremental variance in this outcome.
4.7.4 Practical implications of work design model and questionnaire
You can use the Work Design Model and its questionnaire as a practical guide to:
• assess the level of each characteristic in the job and, hence, the job’s current motivation
potential, and
• pinpoint the areas where you can redesign some aspects of the job to make it more satisfying
and motivating.
We reproduce the questionnaire below.
Work Design Questionnaire

Results of meta-analysis of work design evidence
4.7.5 Motivational work design in workplace
How relevant are the issues of motivational work design in today’s workplaces? Listening to the
rhetoric about highly skilled jobs in the knowledge economy, one may assume that most jobs these
days are complex and enriched. Certainly this is true for some sectors and some jobs. However, there
continues to be a large (and in some cases growing) number of low-wage, low quality jobs in both
advanced and developing economies. Thus, evidence from the United States suggests that jobs are
becoming increasingly polarised in terms of their quality: there are more ‘good jobs’ and more ‘bad
jobs’, with a growing gap between them.
According to the European Working Conditions Survey (2010) covering 44,000 workers across 34
European countries, more than one-fifth of jobs have poor intrinsic quality. And examples of poor
work design abound even in new jobs. For example, weatherisation jobs (making houses more energy
efficient) in the US have been designed as low-wage, poor-quality jobs with little opportunity for
development.
Why do poor-quality work designs continue to exist when there is clear evidence about their negative
individual and organizational consequences, such as burnout, poor performance, absenteeism and
turnover? Some argue that enriched jobs (which have greater compensation and training

requirements) are prohibitively costly and cannot be implemented in industries in which efficiency
and cost effectiveness are key. Yet, whether deskilled jobs are the optimal economic option in these
industries is highly debatable, especially taking into account the costs of turnover and absenteeism.
One also must take into account the long-run social and health costs of poorly designed jobs that are
paid by families and communities.
The forces that perpetuate poor work design reside at many levels and therefore changing the
situation will require insights and action from multiple stakeholders. Globally, the rise of poor-quality
jobs is driven by changes in technology and other macroeconomic and social forces. Thus, technology
has eradicated many middlelevel jobs, leaving low-skilled jobs that cannot be computerised. Owing to
increased competitive pressure, organizations use outsourcing and contingent contracts to design
work in ways they might not otherwise have been able to. Work design is also affected by national
policies, regulation, and institutions. For instance, low-wage retail jobs in Germany are broader and
more interesting than those in the United States as a result of Germany’s strong vocational training
system. At organizational level, poor-quality work design sometimes represents a continuation of
traditional practice, when work redesign focuses on job simplification and efficiency (Parker, 2014)
4.8 Work characteristics and personality: The theory of purposeful work

behavior
The theory of purposeful work behavior is a relatively new theory of motivation, proposed by Barrick
et al. (2013). Its distinguishing contribution is the integration of the Five-Factor Model of personality
and work characteristics into motivation theory. The theory suggests that, to explain motivation, we
need to focus on two determinants of behavior: (1) person’s dispositions and (2) work characteristics.
4.8.1 Person’s dispositions
Similar to other needs theories of motivation, the theory of purposeful work behavior identifies
several needs (called here “higher-order goals”) that drive individual behavior:
1. Communion – need for meaningful contact and to get along with others.
2. Achievement – need to demonstrate personal competence and a sense of accomplishment.
3. Status – desire to exert power and influence over others.
4. Autonomy – need to gain control and understanding of important aspects of the work
environment and to pursue personal growth opportunities.

The theory emphasises that different personalities strive for particular goals (consciously or
subconsciously). For example, the personality trait Agreeableness is associated with tendencies
towards kindness, unselfishness, generosity and fairness. Individuals high on Agreeableness tend to
be altruistic, sympathetic and eager to help others. Agreeableness is thus linked to striving for
communion, i.e. for interacting with others in harmonious ways. Take another example, extraverts
are energetic and ambitious. The primary essence of Extraversion is a proclivity to obtain rewards and
dominate others, rather than sociability. Because rewards (e.g. promotions or salary increases) are
usually obtained by excelling relative to others, individuals high on Extraversion are motivated by a
desire to get ahead of others. Their goal is status.
4.8.2 Work characteristics
Different jobs have different task and social characteristics. Individuals would have preference for the
jobs that match their goals (and these goals, in turn, stem from their personality).
For instance, agreeable individuals will seek work situations that facilitate the communion strivings.
These work situations involve social support, interdependence among employees, and interpersonal
interaction with individuals outside the organization. On the other hand, extraverts will favour jobs
with high task significance that endow more power and prestige. They will also prefer jobs that that
provide feedback encouraging competition because such jobs provide greater opportunities to
influence others, which helps extraverts fulfil their desire for status. In contrast, an introverted
employee, who is shy, quiet and does not like attention, will not be motivated to strive for status, even
if the task has significance to others and provides the chance to engage in leadership or to compete
with others. In such situation the individual’s personality is discordant with the demands or
opportunity inherent in the work setting.
In situations where individuals are unable to pursue their goals unfettered, they do not perceive the
situation as personally meaningful to them (except in a negative way) and will not be motivated to
perform their task. Such situations would be taxing to the individuals both psychologically and
physically because the job would force the individual to “swim upstream” (i.e. to work against what
comes naturally to the person). When a person is required to do tasks they prefer not to do or tasks
in which they have little interest or to use skills they don’t use frequently or to interact with people
with whom they have little in common, the person is forced to consciously direct energy and attention
to overcome the obstacles. This depletes the person’s energy and leaves them feeling emotionally
drained, frustrated and worn out.
4.8.3 Model of purposeful work behavior (motivation)
To put it all together: the theory of purposeful work behavior proposes that individual personality
affects individual needs and goals. Different jobs have different characteristics, which allow to satisfy

specific goals. When the job characteristics provide opportunities to fulfil the person’s goals, the
person will experience their work as meaningful and will be more satisfied with the job, more
motivated to perform the job well, more inclined to engage into organizational citizenship behavior,
less inclined to engage in counterproductive behaviors, and be less likely to quit the job.
In contrast, if there is a mismatch between the individual’s strivings and the job characteristics, then
the person will be less motivated and will be less inclined to exhibit desirable behaviors.
The following diagram provides a visual summary of the argument.
Model of purposeful work behavior
Since people’s personality characteristics shape their goal strivings, this in turn makes people with
particular personalities seek the jobs – and the work situations –in which they can satisfy these needs.
For instance:
• agreeable individuals will seek work situations that facilitate their communion strivings and
involve social support, interdependence among employees, and interpersonal interaction
with individuals outside the organization.
• extraverts will favour jobs with high task significance, that endow more power and prestige.
They will also prefer jobs or work tasks that provide feedback from others -- encouraging
competition because such jobs provide greater opportunities to influence others, which helps
extraverts fulfil their desire for status; and so forth.
Altogether, the following diagram presents the summary of predictions about how personalities are
linked to goal strivings and how these strivings are linked to preferences for particular job
characteristics.

Relationships between personality, goal-striving and job characteristics
4.8.4 Practical implications
The recommendations for management practice that stem from this theory are quite straightforward.
• Firstly, personality assessment can help individuals choose the jobs with characteristics that
match their striving for particular higher-order goals.
• Secondly, personality assessment can also help organizations match persons with jobs, in
selection, promotion and transfer decisions.
• Finally, understanding how personality interacts with job characteristics can help diagnose
performance problems and various ‘positive’ and ‘negative’ organizational behaviors.
4.9 TAKEAWAYS
1. Job satisfaction is an evaluative state that expresses an individual’s contentment with and positive
feelings about their job. It can be measured as a global attitude towards one’s job or decomposed
into five facets of satisfaction with work, supervision, co-workers, pay and promotion.
2. The facet of job satisfaction that is most closely related to overall job satisfaction is work
satisfaction. Work satisfaction stems from work design, i.e. the content and organization of one’s
work tasks, activities, relationships and responsibilities.

3. The Work Design Model identifies 21 characteristics of a job relevant to work satisfaction, grouped
into four categories: (1) task characteristics (work scheduling autonomy, decision making
autonomy, work methods autonomy, task variety, task significance, task identity, and feedback
from job; (2) knowledge characteristics (job complexity, information processing, problem solving,
skill variety, and specialisation); (3) social characteristics (social support, interdependence,
interaction outside the organization, and feedback from others); and (4) work context
characteristics (ergonomics, physical demands, work conditions, and equipment use). These job
characteristics affect the extent to which a job is experienced as ‘boring’ or ‘interesting’, ‘dull’ or
‘enjoyable’, ‘routine’ or ‘challenging’, etc.
4. Work design affects not only job satisfaction and work motivation, but also many other significant
outcomes, such as job performance, stress, organizational commitment and absenteeism. The
Work Design Model can be used as a practical guide for assessing a job’s current motivation
potential and for pinpointing the aspects of the job that can be redesigned to make the job more
satisfying and motivating. The meta-analytical evidence relating various aspects of job
performance and job satisfaction to specific work characteristics can be employed to redesign
work/jobs to improve specific performance and satisfaction outcomes.
5. The theory of purposeful work behavior integrates the Five-Factor Model of personality and work
characteristics into a motivation theory. An individual’s personality characteristics
(conscientiousness, openness to experience, agreeableness, extroversion, and neuroticism) shape
their goal strivings (for communion, achievement, status or autonomy). This in turn makes people
with particular personalities seek the jobs and work situations in which they can satisfy these
needs. This theory suggests personality assessment can help individuals find jobs they would find
satisfying, help organizations match persons with jobs, and help managers diagnose performance
problems and identify solutions.
Section 5: Groups and teams
• identify the factors that affect group dynamics, including size, composition, cohesion, and
norms.
• explain how size affects group processes.

• identify when a more homogeneous or a more diverse group/team is more appropriate.
• propose how to decrease or increase team cohesiveness, as necessary.
• specify the role of norms and conformity to norms, as well as deviance and dissent, in
organizations.
• determine the stages of group development and their impact on group processes and
effectiveness.
• differentiate between types of tasks that groups may be called to perform and how groups
perform on these different tasks vis-à-vis the performance of group members.
• analyse how working in a group may affect the individual motivation to contribute effort.
• pinpoint potential pitfalls of group decision making and strategies to combat these.
• explain what makes a group a team.
• identify team’s type based on the skill differentiation - authority differentiation - temporal
stability framework and use the framework to diagnose team problems and develop
appropriate solutions.
• examine the factors contributing to team effectiveness (using input-processoutput
framework); in particular, recall ten effective teamwork behaviors and explain their practical
utility.
• assess your team role using Belbin’s model of team roles and articulate how knowing your
role can help you for working in teams.
• Identify effective approaches to team training and team-building interventions.
5.2 Linked readings
Organizational Behavior, Chapter 11 Teams: Characteristics and Diversity
Organizational Behavior, Chapter 12 Teams: Processes and Communication
5.3 Defining groups
Working in groups and teams is a ubiquitous feature of the modern organizational life. Groups and
teams are, however, not mere aggregates of individuals. They have their own properties and
processes that affect the way in which individuals operate. Individuals change their behavior when
they work in a group: their motivation, opinions and actions alter through contact, interdependence
and communications with others.
How large or small, diverse or homogenous, young or mature, cohesive or noncohesive the group is
and what tasks it is called to undertake significantly influence the performance of a group; and, with
teams, the further considerations include the interdependence between team members and the
balance of team roles. Putting together an effective group or team is a challenge, and the knowledge

of factors affecting group dynamics and team effectiveness is an important asset to meet this
challenge.
Virtually all human activities – learning, working, playing, and relaxing – are done in groups; and
human behavior is so frequently a group behavior that it cannot be studied in isolation. What is a
group? Consider what groups you belong to. Would you include your family in it? your study group?
the organization you work for? your friends? your neighbours? people of the same religious or political
beliefs? What do these collections of individuals have in common?
In organizational behavior and management studies, a group is defined as “two or more individuals
who are connected by and within social relationships” (Forsyth, 2010: 3).
In principle, a group can range in size from two to thousands of members. Organizations, such as
businesses, non-profits, trade unions and professional associations, are groups; and so are social
categories – i.e. aggregations of individuals who are similar to each other in some way – such as
gender, nationality or profession; and so are collectives such as audience, crowd or mob.
Organizations and categories (and, to lesser extent, collectives) play important roles in organizational
behavior, but are usually considered under topics other than that of group dynamics. In OB and HRM,
the focus, however, is on small(er) groups, as the primary units in which people work, such as crew,
ward, committee, board, cast, department, and so forth. Individuals within a group are connected by
(strong or weak) ties. The larger the group, the more ties are needed to join individuals to each other:
only one relationship is needed to create a dyad, but a 5-person group would need 10 ties, and a 10-
person group – 45 ties.
Individuals are also linked to the group as a whole - through their membership in the group. Groups,
unlike networks, have definite, stable (though permeable) boundaries that define who is in the group
- and who is not. Group members share a common social identity, as they identify with the group and
derive part of their self-definition from their membership in the group. Group identity creates a sense
of “we/us” and defines the qualities that group members (think they) have in common. This also
differentiates “us” (group members) from “them” (other groups or individuals who do not belong to
the group).
To summarise, groups
• are collections of individuals who are linked together by social ties linked to the group as a
whole
• have clear boundaries
• have a sense of common social identity
• Individuals within a group:
• are linked to each other by social ties
• are linked to the group through membership
• have common social identity.

These aspects of groups have significant implications for how individuals in groups act and how a
group as a whole operates.
5.4 Factors affecting group dynamics and performance
Factors that affect group dynamics and performance include:
1. the number of individuals in the group, i.e. group size;
2. the diversity of group members, i.e. group composition;
3. the degree of interpersonal attraction within the group, i.e. group cohesion;
4. group norms;
5. the extent of group development;
6. the type of tasks the group is called to perform;
7. the group members’ motivation.
5.4.1 Group size
Size matters, where groups are concerned. Some processes within a group are simply a reflection of a
group size; and large groups function differently to smaller groups.
Firstly, size impacts on the number of ties within a group. In a dyad, there is just one tie, and it is likely
to be strong. As the group size increases, so does the number of ties needed to connect each group
member to all other members. In larger groups, requiring many ties, some ties are stronger than
others, and some ties are indirect (e.g. A talks to B, but not to C, B talks to C, so A is connected to C
indirectly).
The stronger and the more direct the ties are within the group, the greater the group’s intimacy and
cohesion. As the group size increases the intimacy and cohesion decrease, leading to the decrease in
member satisfaction with the group. Yet, the stronger and more direct ties characteristic of smaller
groups may also have their dangers. For instance, it is not uncommon for the members of the smallest
group, dyad, to privilege their relationship over other matters and therefore to arrive at false
consensus in order to preserve this relationship.

Size also impacts on communication within the group. Consider, for instance, a group meeting. Within
the confines of time allotted for a meeting, there will be more opportunities for each member of a
small group to voice their opinions than there would be for all members of a large group.
The smaller number of people involved also means that speaking out may generate less anxiety for
the more reserved or shy members of the group. In larger groups members report more feelings of
threat and inhibition. Larger groups provide fewer opportunities for participation than smaller ones,
may come to be dominated by one or a few most vocal members, need to develop more formal rules
of interaction to avoid descending into chaos, and take longer to reach a decision. Because of lower
participation and greater formality characteristic of larger groups, their members often find them less
satisfying to work in than smaller groups. Larger groups are more competitive, less unified and more
argumentative.
Although there is no ‘magic number’ for the perfect group size, recent research suggests that small
work groups of 3 to 6 members have much better chances of reaching the higher (third and fourth)
stages of group development and, consequently, have higher productivity than larger groups
(Wheelan, 2009).
Determining group size is a crucial decision. Yet, in making this decision, it may not be possible to be
guided solely by theoretical considerations and so keep the group small, because some work groups
– such as top management teams or product development teams – may need to include
representatives of different functions or disciplines to provide specialist input.
5.4.2 Group composition: diversity
Another factor that affects group dynamics is group composition or diversity. What is diversity in the
group context? Diversity refers to differences between group members. These difference may include
demographic characteristics (e.g. age, gender), personality traits, abilities, functional attributes (e.g.
occupation/ profession, organizational status), and other differences (e.g. personal values).
Diversity can be conceptualised on two different levels.
• On individual level, diversity refers to “differences between individuals on any attributes that
may lead to the perception that another person is different from the self”. These attributes
may refer to demographic characteristics (e.g. age, gender), personality traits, abilities,
informational/functional characteristics (e.g. occupation/profession, status), and other types
of diversity (e.g. personal values) (Roberge and van Dick, 2010: 296).
• On group level, diversity is “the collective amount of differences among members” (Harrison
and Sin, 2005: 196) or ‘the degree to which objective or subjective differences exist between
group members” (van Knippenberg and Schippers, 2007: 516).

Which differences are important and which are not? This is not an objective judgement, but a
subjective one. What matters is which differences are perceived by group members as important. For
instance, if group members do not see age difference as an issue - then it is not.
5.4.3 Group composition: homogeneity vs. heterogeneity
Is it better to have a heterogeneous (i.e. diverse) group or a homogeneous group (where all members
are similar to each other)? There are two contrasting answers to this question.
“Homogeneous groups are better”
This answer is based on the theories of social categorisation and similarityattraction.
Social categorisation theory suggests that individuals categorise themselves and others into ‘in-group’
and ‘out-group’. Similar others are classed into ‘in-group’ and dissimilar others - into ‘out-group’.
Individuals tend to favour the in-group, derogate the out-group, trust in-group members more and be
more willing to cooperate with them.
Similarity-attraction theory makes a similar argument: people prefer to work and, generally, associate
with those who are similar to them. (Here, the psychological research contradicts the common
wisdom that “opposites attract”.) Similarity strengthens the bonds between people, makes
communication easier and prompts people to help others. All these behaviors support groups to
achieve better performance.
Consequently, social categorisation/similarity-attraction perspective argues that the greater the

similarity between group members, the more smoothly the group would function and the more
satisfied the group members would be. This argument is supported by research evidence that in more
homogeneous groups, group cohesion and group performance are higher and the turnover of group
members is lower.
This perspective highlights the negative effects of group diversity.
“Heterogeneous groups are better”
This answer comes from an information and decision-making perspective on diversity. The perspective
suggests that the more diverse the group is, the broader the range of knowledge, skills and abilities
available to the group. A more diverse group can thus draw on a larger pool of resources than that of
homogeneous groups. Diverse information and diverse viewpoints may stimulate more creative
thinking and more comprehensive analysis of problems and solutions, encompassing different angles.
Research evidence suggests that work group diversity promotes innovation and problem-solving.

This perspective emphasises the positive effects of group diversity.
Implications for practice
Given that there are two, equally valid, but diametrically opposed answers to the question of group
homogeneity and heterogeneity, what recommendations for practice can we derive with regard to
group composition?
As you may guess, the recommendations will depend on what we want the group to achieve:
• If you want people to get along and for the group to run smoothly and to just “get on” with a
task at hand, then a homogeneous group would be better.
• If you need to bolster the group creativity, if the task requires coming up with new, original,
unorthodox solutions, then a diverse group would do better.
A “representational gap” problem
To gain a better understanding of group diversity, consider the following case of a cross-functional
product development team at an auto manufacturing company (Cronin and Weingart, 2007: 761-762).
The team has been given a mandate to make a “tough” truck. The designer, thinking in terms of styling,
conceptualizes “tough” as “powerful looking”. The designer then sketches a vehicle with a large grille
and large tires, creating a very powerful stance. When seeing this mock-up, an engineer, thinking in
terms of functionality and conceptualizing tough as implying durability, is unhappy with the design
because it compromises the vehicle’s power. Maintaining hauling capacity with large tires implies a
need for greater torque output from the engine, adding expense and difficulty to the engineer’s part
of the problems. When the engineer suggests 16- rather than 20-inch wheels, the designer balks,
claiming it makes the vehicle look cartoonish rather than tough.
What we have here is an example of representational gap, i.e. a difference or inconsistency between
group members’ interpretations of what is needed for the group to be successful. In the case of tough
truck, the representational gap concerns the conceptualisation of “tough”.
Although the designer’s and the engineer’s conceptualisations can coexist (a vehicle can be both
powerful looking and durable), resources are often limited, and accommodations between alternative
perspectives are required if the truck is to be built within specifications.
Such accommodations can be difficult to achieve. In the best of situations, the designer may want to
help solve the engineer’s torque problem by offering solutions that maintain the vehicle theme.
However, lacking training in engineering principles, it will be difficult for the designer to propose
feasible solutions, as much as it will be difficult for the engineer to know what features will and will
not convey the “tough” theme. For the engineer to accept the use of 20-inch wheels, she would have
to justify the resulting cost of increased torque. Even if cost and benefit could be calculated accurately,

the designer’s and engineer’s assessments of the tradeoff would likely differ in line with their
functional values. If styling is assessed as the primary driver of the purchase of a truck, then the benefit
of the 20-inch wheels will be greater than if functionality is the primary driver”.
Fundamentally, a representational gap reflects differences between team members’ problem

definitions that will ultimately affect group problem solving.
5.4.4 Cohesion
As we just noted, similarities attract – and interpersonal attraction is one of the explanations for a
third important group characteristic – group cohesion (or cohesiveness).
Cohesion is defined as “a dynamic process that is reflected in the tendency for a group to stick
together and remain united in the pursuit of its instrumental objectives and/or for the satisfaction of
members’ affective needs” (Carron and Brawley, 2000: 94). The notion of cohesion implies group
solidarity, esprit de corps and “we-feeling”. Cohesion is often described, metaphorically, as
interpersonal glue.
It is not entirely clear what binds group members together, but the possible candidates for the role of
“interpersonal glue” are:
1. interpersonal attraction between group members
2. group members’ attraction to the group as a whole (as a collectivity), and
3. group properties, such as “common fate” and structures that promote group unity.
Benefits of cohesion
Cohesion improves the communication between group members, makes members work harder to
achieve group goals, and increases co-operation and mutual help between members. Consequently,
cohesion is expected to result in better group performance. Research evidence generally supports this
expectation, as it shows that more cohesive groups tend to outperform the less cohesive ones. Yet,

researchers are still not sure why cohesion and performance are related(CaseyCampbell and Martens,
2009; Greer, 2012).
Pitfalls of cohesion
Cohesion, however, may be a “double-edged sword” (Langfred, 1998). Essentially, cohesion implies
the members’ commitment to the norms and shared values of the group and serves as a controlling
force to regulate the members’ behavior in line with these norms and values. If the group values
performance and productivity, then high cohesion will lead to higher performance; if it does not, then
high cohesion can be counterproductive. We can envision this happening in a student group where
the students’ attention is attracted by issues other than academic study or in a work group that is
consumed with anxiety about change or is in a conflict with management (Pescosolido and Saavedra,
2012: 748). Cohesive groups may also be difficult to change and may develop critical or even hostile
attitudes towards people outside the group. One potential negative consequence of high cohesion is
groupthink – a phenomenon that is discussed later in this unit.
5.4.5 Group norms
Group norms are “the informal rules that groups adopt to regulate and regularize group members’
behavior” (Feldman, 1984: 47).
Groups do not have the time or energy to regulate each and every action of individual members.
Instead, group develop norms that do so for the whole group. Groups are more likely to have - and
enforce - the norms that ensure group survival, facilitate task accomplishment, contribute to group
morale, and express the group’s central values.
1. Groups create and enforce norms that facilitate group survival and protect the group from
interference or harassment by other groups. For example, a group might develop a norm not to
discuss its salaries with the members of other groups in the organization, so that other groups do
not become aware of pay inequities in its favour. A group might also have a norm not to discuss
internal problems with members of other groups, so that other groups would not use this
information against it.
2. Groups develop and police the norms that simplify or make predictable the behavior expected of
group members. If each member of the group had to decide individually how to behave in each
interaction, much time would be lost performing routine activities. Moreover, individuals would
have trouble anticipating the behaviors of others and responding correctly. Therefore, group
create norms that enable their members to anticipate each other’s actions and prepare the most
appropriate response. For instance, a group may develop norms for conducting meetings and
reaching decisions (e.g., by majority vote or by consensus), in order to reduce uncertainty and
provide a clearer course of action.

3. Groups establish and impose the norms that help the group avoid embarrassing interpersonal
problems. Groups want to insure that no one’s self-image is damaged, called into question or
embarrassed. Consequently a group may establish norms that discourage topics of conversation
or situations in which one might “lose face”. For instance, groups develop norms about no
discussing romantic involvements (so that differences in moral values do not become exposed) or
about no getting together socially in people’s homes (so that differences in taste or income do not
become salient)
4. Groups institute and enforce the norms that express the central values of the group and clarify
what is distinctive about the group identity. Norms provide social justification for group activities.
When a group of production workers ostracises a rate-buster, it says: “We care more about group
security than about individual profits.” Norms also convey what is distinctive about the group to
outsiders. When a group of advertising agency managers ridicules a member for wearing unstylish
clothes, it says: “We think of ourselves as trend-setters and being fashionably dressed conveys
that to our clients” (Feldman, 1984: 48-50).
How do group norms emerge?
Sometimes group norms arise from an explicit statement of expectations – by a group leader or a
member. For instance, the leader may inform the members that all group meetings start promptly on
the hour, and all members are expected to be present.
Sometimes norms emerge from critical events (or just incidents) in the group’s history. Imagine that
a group member makes a suggestion to a supervisor who ridicules him for making the suggestion.
Group members then might ensure not to offer any more suggestions in the future.
Norms can also emerge from the first pattern of behavior that emerges in a group. For example, if the
first speaker in the group shares her feelings and anxieties with the other group members, the open
discussion of emotions in the group can become a norm.
It is important to understand how norms emerge because, once a group norm is established, it is
difficult to change.
How are group norms enforced?
Group norms are enforced through reward and punishment.
Groups reward conformity. Conformity means matching one’s own attitudes, beliefs, and behaviors
to group norms. Conformity to group norms reaffirms that the individual belongs to the group,
increases their acceptance by the group, and produces the sense of security. Rewards for conformity

include accolades from other members, emotional support, increase in social status, and acceptance
of individual’s ideas by other members of the group.
In contrast, dissenting and deviant behavior is usually subjected to various disciplinary measures,
ranging from verbal reminders and persuasion to mild sanctions, such as ridicule, to stronger
measures, such as ostracism, and possibly even physical action. The ultimate punishment is the
expulsion from the group.
Research and practice have traditionally focused on the threatening and dysfunctional aspects of
dissent and deviance. However, there is a growing body of evidence suggesting that dissent and
deviance can have a positive effect on groups.
Deviance
Deviance is the violation of the norms of a group. The likelihood that behavior will be labelled as
deviant is always determined in relation to the content of a norm and the context of behavior. In other
words, the same behavior can be perceived both as deviant and normative depending on the group
norm and context. For example, for boxers, hitting someone will be normative during a boxing match
but not after the match has finished.
What is considered deviant may also change with time. Behavior that was previously perceived as
deviant might become conformist when the majority changes its stance and other behaviors become
normative. Quoting from a famous American sociologist Robert K. Merton, “the rebel, revolutionary,
nonconformist, individualist, heretic and renegade of an earlier time is often the culture hero of
today.”
What is the value of deviance? French sociologist Emile Durkheim, identified several ways in which
groups benefit from having deviants in their midst:
• Deviants have an important role in affirming group values and clarifying norms. Group
members know what is the right thing to do by knowing what is normatively deviant and
unacceptable (To be “good” makes sense only in relation to being “bad”).
• Deviance is functional and valuable for groups because it draws attention to alternative forms
of behavior and thereby allows for social change. For example, Rosa Parks’ refusal to give up
her bus seat to a white passenger was an important catalyst for the civil rights movement,
ultimately leading to the abolishment of segregation laws in the United States. By drawing
attention to different viewpoints, by exposing group norms through the process of violating
them, by challenging conventional wisdoms, and by creating conflict, tension and debate,
deviants are able to move a group forward. As Durkheim explained: “It would never have been
possible to establish the freedom of thought we now enjoy if the regulations prohibiting it
had not been violated before being solemnly abrogated”.

To sum up, the value of deviance lies in the fact that deviance can sharpen the group’s understanding
of its values and can facilitate social change (Jetten and Hornsey, 2014).
Dissent
In contrast, dissent is the expression of disagreement with group norms, group action, or a group
decision. In many cases dissent can be considered an example of deviance, which is why deviance and
dissent are often referred to in the same breath. But not all groups would see dissent as synonymous
with deviance. For example, in academia, being critical and challenging of the status quo is collectively
encouraged, and failure to engage in critical dissent might be seen as deviant.
What is the value of dissent? Dissenting minorities exert influence on the group as a whole because
they force the majority to think outside the box. They guard the group against complacency, challenge
conventional wisdom, and keep the group sharp and on its toes. In that way, dissenting minorities can
change norms that have lost their utility.
The presence of dissent might lead group members to tackle the faults of their group, and the
dissenters’ critical stance protects the group from suboptimal decision making. Groups that include
devil’s advocates make higher-quality decisions and are less prone to classic decision-making mistakes
such as escalation of commitment in the face of losses.
Dissent can be beneficial in educational contexts and promote quality of learning. This is because
dissent and exposure to disconfirming information and opposing arguments may stimulate cognitive
activity. It forces people to critically reflect on the validity of their views and because it enhances
openness to other viewpoints.
To sum up, the value of dissent lies in the fact that dissent increases the quality of group decision
making and is essential for creativity, innovation, and learning (Jetten and Hornsey, 2014).
5.4.6 Group development
Yet another factor that affects group processes and outcomes is the group development. Consider
some facts:
• According to the US National Transportation Safety Board data, 73% of all incidents occurred
on an airplane crew’s first day of flying together; and 44% of those took place on a crew’s very
first flight.
• According to the NASA data, fatigued crews who had worked together before made only half
as many errors as crews made of rested pilots who had not flown together before. It clearly
takes time – and effort – for a group to develop so that it can perform properly.

We will look into two models of group development here:
• a classic but still valid model, introduced by an educational psychologist Bruce W. Tuckman,
which presents group evolution as a sequence of five stages (Tuckman, 1965; Tuckman and
Jensen, 1977): forming, storming, norming, performing and adjourning; and
• a “punctuated equilibrium” model proposed by Connie Gersick (1988), which portrays group
evolution as the periods of inertial activity alternating with the bursts of change.
Group Development: The Five Stage Model
In the five-stage model of group development (Tuckman and Jensen, 1977), groups are seen as
proceeding through the distinct stages of forming, storming, norming, performing and adjourning. In
each of these stages, the group must attend to both the completion of the task (task activity) and the
interpersonal relationships within the group (group structure).
1. Forming. In the forming stage group members just familiarise themselves with the task – and with
each other – before they get on with the task at hand. They are not yet doing their job, but what
they do is still important for the group’s ability to eventually perform their task. At this stage
individuals, although they are put in the group, don’t yet feel and think of themselves as part of a
group. The main characteristic of this stage is uncertainty: individuals are just beginning to figure
out how to go about their group task and how to behave and relate to each other. They are testing
the waters – and the boundaries of what’s acceptable, what’s not.
2. Storming. In the storming stage group members already see themselves as members of the group,
but resist the constraints that a group imposes on them. They feel rebellious because of the
demands that the task places on them - and because of the restraints that being in the group
naturally places on their freedom and individuality. The main characteristic of this stage is conflict
- conflict over who will control the group and/or how the group will control itself. When – or if –
this stage is complete, there will be a relatively clear hierarchy of leadership within the group.
3. Norming. In the norming stage, the group begins to gel together and become more cohesive. It
develops a sense of group identity and camaraderie. It is called norming because this is when the
norms – that is, the informal rules that regulate the behavior of group members – emerge and
solidify. By the end of this stage, the group has developed and assimilated a common set of
expectations about what is correct/appropriate group member behavior.

4. Performing. It is only when the group has passed through the stages of forming, storming and
norming that it becomes a performing group – and the group has finally moved on from getting
to know and understand each other to performing the task at hand.
5. Adjourning. For permanent work groups, performing is the last stage in development. For
temporary groups, such as committees or task forces that have a limited task to perform, the last
stage is the adjourning stage – when the group wraps up its activities and prepares to disband.
Tuckman’s five-stage model of group development
Not all groups follow the five-stage model precisely: some groups collapse before reaching the
performing stage and some stages may occur simultaneously. Organizational context has considerable
influence on group development, as it may set the roles, define the tasks, and provide the needed
resources. Still, the model provides a useful framework for orienting the group members towards the
complexity of interpersonal and task-related processes that unfold as the group evolves.
The practical implication of this model is fairly straightforward: A collection of individuals does not
become a group instantly. It needs time to develop as a group. Important processes - such as
discovering the acceptable and inacceptable behaviors, through trial and error - and through conflict
- and developing the common understandings about the rules of behavior within the group - have to
take their course before the group can perform its allotted tasks.
Punctuated equilibrium model

Punctuated equilibrium is a concept originally proposed in the field of natural history. According to
this concept, systems progress through long periods of inertia that are occasionally punctuated by
concentrated, revolutionary periods of quantum change.
A punctuated equilibrium model (Gersick, 1988) of group development applies to temporary groups,
which have a set deadline – like a student study group working on a group project. According to this
model, group development occurs in two phases, separated by a transition period.
Gersick’s punctuated equilibrium model of group development
Phase 1 takes up approximately the first half of group’s calendar time. It is an initial period of inertial
movement. Its direction is set by the end of the group’s first meeting. Rather than engaging in an
open-ended exploration (as the traditional model of group development would suggest), a group
would exhibit a distinctive approach to its task as soon as it commenced and would stay with that
approach throughout Phase I. During this phase groups may show little visible progress because their
members may be unable to perceive a use for the information they are generating until they revise
the initial framework.
Transition occurs at the midpoint of the group’s allotted calendar time. The transition sets a revised
direction for Phase 2, a second period of inertial movement. During the transition, the group drops
old patterns, adopts new perspectives on its work and makes a dramatic progress. The new
approaches developed during the transition would carry the group through the second phase of
inertial activity, in which it would execute plans created during the transition. The transition is a
powerful opportunity for a group to alter the course of its life midstream. But the transition must be
used well, because once it is past a team is unlikely to alter its basic plans again.

Phase 2, a second period of inertial movement, takes its direction from plans crystallized during the
transition. At completion, when a team makes a final effort to satisfy outside expectations, it
experiences the positive and negative consequences of past choices.
The punctuated equilibrium model applies to project groups and groups that have been set up to
develop something new. Gersick derived the theory from a study of several very different groups,
which provide a good illustration of where the model may apply:
• an MBA student team analysing a management case over a period of one to two weeks;
• a community fundraising agency committee, tasked to design a procedure to evaluate
recipient agencies in three months;
• a bank task force set up to design a new bank account in one month;
• a team of hospital administrators planning a one-day management retreat; and
• a group of university faculty members and administrators required to design a new academic
institute over the course of six months.
The punctuated equilibrium model alerts managers to the fact that there are two critical periods when
groups are much more open to fundamental influence than they are at other times.
The first critical period is the initial meeting. This meeting will set lasting precedents for how the group
will use the first half of its time. Therefore, group leaders must prepare carefully for the first meeting,
because groups use the first meeting to diagnose the unique issues that will preoccupy them during
phase 1. A leader who discovers at the first meeting that the group adamantly opposes the task may
do best to decide whether to restart the project or help the group use phase 1 to explore the issues
enough to determine, at transition, whether it can reach an acceptable formulation of the task. Once
past the first meeting, in phase 1, interventions aimed at fundamentally altering a group may be
unsuccessful because of members’ resistance to perceiving truly different approaches as relevant to
the concerns that preoccupy them. Groups that begin with a deep disagreement may do best to
pursue the argument fully enough to understand by transition what is and is not negotiable for
compromise.
The transition is the second critical period, the second chance. At this point, the team can open to
outside influence and use outside resources and requirements as a basis for recharting the course of
their work. The midpoint appears to work like an alarm clock, heightening members’ awareness that
their time is limited, stimulating them to compare where they are with where they need to be and to
adjust their progress accordingly: it is “time to roll.” The midpoint is an important opportunity for
groups and managers to renew communication. The challenge of the transition is to use a group’s
increased information and the fresh input from its environment to revise its framework and adjust
the match between the group’s work and the external requirements and resources.

5.4.7 Group tasks
Do groups perform better than individuals and when should groups be used? In some circumstances
there is no choice: “only individuals can fly single-seat planes, and only groups can operate planes that
require synchronised input from multiple crew members”.
There are also some types of work that are inherently more suitable for individual than collective
performance. For instance, creative composition (whether it concerns poetry, prose or music or more
mundane activities such as writing committee reports) is better done by an individual than a group.
In most situations, however, the answer to the question “How does group performance compare to
that of individuals?” is more open and contingent upon how the individual inputs are related to the
group output.
Types of group tasks
Group members’ contributions can be combined to produce the group product in five different ways.
These are known as five types of group tasks (Steiner, 1966; 1976): additive, compensatory,
conjunctive, disjunctive and complementary.
1. Additive. In an additive task, each member of the group works individually and the members’
contributions are added together to make up the group product (hence the term “additive”).
The individuals may be working in parallel doing the same task (e.g., as in a call centre, where
a group of employees answers the calls) or they may be working simultaneously on the same
task (as in a tug-ofwar contest). What is important here is that their individual outputs (or
efforts) are pooled into the overall group output. Brainstorming is an additive task.
2. Compensatory. In a compensatory task, each group member also works individually and
separately, and the group product is “put together” from the individual contribution.
However, unlike in an additive task, where the product is a sum total of what the members
produced, in a compensatory task the individual contributions are averaged. By finding a
mean or median of individual contributions, higher and lower contributions “compensate” for
each other (hence, the term “compensatory”). An example of compensatory task is a selection
interview by a panel: In a panel’s assessment of a job candidate, where the panellists each
give the candidate a score on a scale, the individual panellist scores are averaged to provide
the overall assessment by the panel.
3. Conjunctive. In a conjunctive task, all group members must contribute to the product for it to
be completed. All members must succeed in order for the group to succeed. For example, in
a group of mountain climbers roped together, a single member who falls will bring the whole
group down. A group project where the group is required to develop a report or a presentation
on a particular topic is an example of a conjunctive task, where each member is assigned to

research a particular aspects of the problem or develop a part of the presentation and then
the separate elements are put together into a single whole. Keeping a secret is a conjunctive
task.
4. Disjunctive. In a disjunctive task, a group must select one optimal product or solution from an
array of individual products or solutions championed by individual members. Individual
members suggest alternatives and the group as a whole decides which alternative is best.
Disjunctive tasks cover a variety of situations in which each member of the group produces
their own product and then the group nominates what it thinks is the best product as the
group product. Knowledge competitions where the team would nominate an expert in a
particular knowledge area to give the answer on behalf of the team is an example.
5. Complementary/Discretionary. A complementary task is the one where the group divides the
task into subtasks and then assigns the subtasks to particular members. Group members
combine their abilities, skills, knowledge, or other resources in a collective product that is
more than any group member could produce alone (“the whole is greater than the sum of its
parts”). Examples include: a football team running a play; an orchestra performing a
symphony
Types of tasks
Note that the same process may be structured in a different way and fit into any of the group task
categories. Take, for instance, an organizational decision to acquire another company (Murrell et al.,
1993):
• In one organization, the acquisition may be structured as an additive task, with all group
members receiving information about possible acquisition targets, perhaps from a consultant
or an ad hoc committee. Each group member then evaluates the information and

communicates his or her opinion to the rest of the group so the group can work together to
select the best acquisition possibility.
• In another organization, the acquisition decision may resemble a disjunctive task. Each group
member identifies his or her primary acquisition target and communicates his or her opinion.
Thus, the individual group member must convince the other members that his or her
suggestion is the optimal one.
• In yet a third organization, the acquisition process may resemble a conjunctive task. One
member of the group may examine the financial implications of various alternative acquisition
targets. Another group member may evaluate the legal ramifications of the acquisition. Other
members may have specific knowledge of distribution and production problems related to the
acquisition alternatives. No one group member has all the information needed to make the
optimal decision. Only if all members effectively communicate their unique information to the
group could the group possibly identify the optimal solution.
Why do we discuss the types of tasks in detail? Because whether a group performs better than an
individual depends on the type of task. And therefore this knowledge is important when you as a
manager try to decide whether to give the task to a group or to individuals. The following explains on
which tasks groups perform better than individuals and on which – less well (Furnham, 2005: 501;
Steiner, 1976):
Additive tasks
Additive tasks aggregate the outputs of individual members. So, it follows that on these tasks the
group would outperform its best member. Say, if the strongest group member is pulling on the rope
alone, the pull would be weaker than if this member were joined by the rest of the group. On additive
tasks, group performs better than the best member.
Compensatory tasks
On compensatory tasks, the advantage of the group stems from the use of multiple judgements rather
than from the group per se. Multiple judgements are simply better than a single judgement, as they
compensate for under- and over-estimation. If a lone individual were to make multiple judgements
and these judgements were averaged, the final judgement is likely be as accurate as that of the group.
On compensatory tasks, group performs better than most of its members.
Conjunctive tasks
Performance on conjunctive tasks depends on whether the conjunctive task is unitary or divisible.
• A unitary task cannot be broken into subtasks, and so the group performance is held back by
the performance of its “weakest link”.

• A divisible task can be divided into subtasks. If the subtasks can be matched to the abilities
and skills of the group members, so that the least competent member can be given the easiest
task, then the group performance can be better than that of its worst member. If the subtasks
cannot be matched, and the least competent member ends up with the most difficult task,
then the group performance would suffer accordingly (Forsyth, 2010: 300-302).
On unitary tasks, group performs as well as its worst member. On divisible tasks with matching, group
performs better than its worst member.
Disjunctive tasks
Disjunctive tasks allow the group to choose the best solution to the problem. So, potentially, on these
tasks the group can perform as well as its best member. Yet, the group does not always choose the
best answer. The problems generally fall into two categories.
• The so-called Eureka problems have “obvious” answers: when we are told the answer, we go
“Aha!” or “Eureka”, because we are certain that the answer is correct. On Eureka problems
the “truth-wins” rule obtains: the group is likely to choose the best, or correct, answer.
• The non-Eureka problems leave us wondering whether the answer is correct even after we
have been told the correct answer. For such problems the “truthsupported-wins” rule applies:
the group tends to choose the answer that is best argued or proposed by the most trusted or
powerful member – and this answer is not necessarily the correct one. On Eureka problems,
group performs as well as its best member.
On non-Eureka problems, group performs worse than its best member.
Complementary tasks
On complementary tasks, the group is at liberty to choose how to combine individuals’ inputs. So the
group performance on these tasks would depend on the method that the group chooses.
5.5 Motivation in groups
Group performance depends not only on the type of task but also on the amount of effort group
members devote to the task. Working in a group alters individual’s motivation so that sometimes
people perform better – and sometimes worse – in a group compared to working alone.
5.5.1 Motivation losses in groups

The term “group motivation losses” refers to the reduced levels of motivation and, as a result, the
reduced levels of effort - among members of a group working on a task, relative to comparable
individual performers. In other words, when individuals come together and work in a group, that
group’s performance is often lower than the expected average or sum (depending on the task) of the
individuals’ performance. This has been observed in physical tasks such as rope-pulling and in
cognitive tasks such as brainstorming and is particularly common on additive tasks.
Several reasons for motivation losses have been proposed and studied (Dick et al., 2009: 234):
• Free riding. This occurs when a team member thinks that her/his personal efforts are not really
necessary because the team will reach its objectives anyway due to other members’ work.
Free riding is detrimental to group performance not only because the contribution of this
team member is lacking but also because it has a negative effect on the motivation of the
other team members.
• The sucker effect. This describes a reaction of a team member to the other team member’s
free riding. The team member reduces her/his effort because she/he does not want to be
exploited by a free rider.
• Social anxiety. When a team member is anxious about what their fellow team members might
think about them, it reduces her/his effectiveness.
• Soldiering. This is a reduction of effort of most or all team members in protest at a (perceived)
unfair treatment, particularly by managers or supervisors. The term has been derived from
soldiers marching particularly slowly when they dislike their officer.
• Social loafing. This occurs because group members think their individual inputs in a group
work cannot be identified.
Social loafing
Social loafing is also called the Ringelmann effect, after a Frenchman who first documented this
phenomenon. He observed that the more men were put to the task of pulling a rope the less effort
each of them exerted) (Kravitz and Martin, 1986).
Research evidence shows that social loafing is ubiquitous, but also that various conditions moderate
its extent. Thus, people are more likely to engage in social loafing when:
• it is difficult to evaluate the individual contributions to the collective outcome;

• they are working on tasks perceived as meaningless;
• they believe their contribution is redundant with those of other group members;
• they are working with (relative) strangers;
• they are working in larger groups;
• they expect their co-workers to perform well;
• they are working in less cohesive groups;
• when the group’s outcomes cannot be compared to outcomes of other group.

Social loafing is robust across gender, culture, and tasks, although women and people from
collectivistic cultures tend to engage in social loafing to a lesser extent.
How to reduce social loafing? Research suggests the following strategies (Dick et al., 2009):
• Select people who have a sense that team loyalty is valuable and important, If this is not
feasible, develop team loyalty by making the links between tasks and individual objectives
explicit and reinforcing good group activities, such as setting their own objectives and
reaching consensus.
• Organise teamwork in a way that underlines the interconnection and mutual interdependence
between the team members. This can be accomplished by stressing goal, task, and outcome
interdependence. Goal interdependence can be increased by goal setting strategies that
connect the different interests of the team members and prevent goal conflicts. Task
interdependence can be realised by appropriate task design creating coordination and
communication between the team members. Outcome interdependence can be fostered by
including both individual and team-based incentives, in order to underline the common fate
and mutual contributions to the team project.
• Compare your team with others to stimulate constructive competition.
• Create identity by making the team visible to the team members and by designing meaningful
tasks team members can be proud of.
5.5.2 Motivation gains in groups
Group working is, however, not inherently demotivating and may lead to an increase in the motivation
of individual members.
The concept of “group motivation gains” refer to the situations where group members exert greater
task effort than comparable individuals working alone.
Two types of motivation gains have been described:
• Social compensation. This occurs when individuals increase their efforts on collective tasks to
compensate for the anticipated poor performance of other group members (Williams and
Karau, 1991). Social compensation is usually exhibited by the more capable group members
and is particularly likely when the task is meaningful and so the group members desire to
achieve good results despite the insufficient contribution from other members.
• Köhler effect. This refers to the tendency of (usually inferior) group members to exert greater
effort - and perform better - when working in a group than when working alone. The effect is
named after an industrial psychologist Otto Köhler, who discovered it in the 1920s. In an
experiment, Köhler asked men to do standing curls with a heavy weight. When they worked

in groups, men persisted for longer than when doing it alone. The performance improvement
was particularly pronounced for the weakest individuals.
The Köhler effect
The Köhler effect is a tendency for less-capable members of a group working at conjunctive tasks
increase their effort. The Köhler effect has been neglected for decades and is yet to be fully examined.
The emerging research evidence is, however, intriguing. Thus, a study of the swimming competitions
at the 2008 Olympics has shown that the performance of swimmers was significantly higher when
swimming in relay teams than when swimming individually. Considering that the athletes are already
maximally motivated in their individual competitions, the motivation gains for relay races are
especially remarkable (Hüffmeier and Hertel, 2011). A similar study examining the performance of
athletes in collegiate swimming competitions and high-school track and field relays found that inferior
group members had significantly greater motivation gains – and showed much greater performance
improvement – than their higher-ranked teammates. Interestingly, the superior group members
tended to be slower in the ream races than in individual races (Osborn et al., 2012).
Two potential mechanisms to explain the Köhler effect have been proposed:
• One mechanism is social comparison. People tend to adjust their performance to standards
from their social environment. Working in a group, inferior group members observe the
performance of other members and increase their efforts compared to their usual
performance levels to match or even exceed those standards.
• Another mechanism is social indispensability: People are quite sensitive as to whether their
individual efforts are important for the group outcome. When a group member’s performance
is of major importance (i.e. indispensable) for the group outcome, group members will exert
additional effort because their performance affects not only their personal outcome, but also
the outcome of other persons (Hertel et al., 2008: 1331-1332).
The jury, however, is still out on when and why exactly does the Köhler effect occur.
How can managers increase motivation gains in groups? The recommendations for increasing the
motivation gains are similar to those for reducing the motivation losses:
• Make individual contribution to the group product identifiable – members of the group should
not be able to “hide in the crowd”.
• Ensure that the group task is meaningful and important to all group members – otherwise
some group members may have other priorities and won’t do their best.
• Make group success important to all group members. 5.6 Group decision-making A specific
case of group task is decision making. Groups are often used to make decisions – on the
assumption that more heads are better than one. But is this always the case? The answer is

no – and there are two problems that arise in the process of group decision making that may
make a group a worse decision maker than an individual.
• One problem is groupthink. In cohesive groups in particular, the desire to maintain good
interpersonal relations, to keep the appearance of unity and to maintain the group reputation
and status often leads to a situation when the striving for unanimity overrides the realistic
appraisal of the circumstances and the alternative courses of action. As a result, the group
ends up endorsing an incorrect or immoral decision – even if, deep inside, individual group
members may disagree with it.
• Another problem is group polarisation – the fact that a group discussion makes group
members shift their original positions towards the more extreme version. Rather than
ameliorating the individual differences it tends to magnify them – and consequently this
makes the group’s decision less balanced and more prone to ‘go to the extreme’.
5.6.1 Groupthink
Here is a story. The Ozyx Corporation is a relatively small industrial company. The president of Ozyx
has hired a consultant to help discover the reasons for the poor profits of the company in general and
the low morale and productivity of its R&D division in particular. During the investigation, the
consultant becomes interested in a research project in which the company has invested a sizable
proportion of its R&D budget.
When asked about the project by the consultant in the privacy of their offices, the president, the vice-
president for research, and the research manager each describes it as an idea that looked great on
paper but will ultimately fail because of the unavailability of the technology required to make it work.
Each of them also acknowledges that continued support of the project will create cash flow problems
that will jeopardize the very existence of the total organization.
Furthermore, each individual indicates he has not told the others about his reservations. When asked
why, the president says he can’t reveal his “true” feelings because abandoning the project, which has
been widely publicized, would make the company look bad in the press and, in addition, would
probably cause his vice-president’s ulcer to kick up or perhaps even cause him to quit, “because he
has staked his professional reputation on the project’s success”. Similarly, the vice-president for
research says he can’t let the president or the research manager know of his reservations because the
president is so committed to it that “I would probably get fired for insubordination if I questioned the
project.” Finally, the research manager says he can’t let the president or vice-president know of his
doubts about the project because of their extreme commitment to the project’s success.
All indicate that, in conversations with one another, they try to maintain an optimistic facade so the
others won’t worry unduly about the project. The research director, in particular, admits to writing
ambiguous progress reports so the president and the vice-president can “interpret them to suit
themselves.” In fact, he says he tends to “slant them to the positive” side, given how committed the

brass are.” In the meeting itself, praises are heaped on the questionable project and a unanimous
decision is made to continue it for yet another year (Harvey, 1974: 67-68).
Does this story sound familiar?
This story is an illustration of groupthink – ”a mode of thinking that people engage in when they are
deeply involved in a cohesive in-group and when the members’ striving for unanimity overrides their
motivation to realistically appraise alternative courses of action” (Janis, 1982: 9).
The phenomenon of groupthink was discovered by a psychologist Irving Janis, who first studied it in
the context of the US foreign policy fiascos, such as the failure to anticipate the Japanese attack on
Pearl Harbor in 1941. He went on to document groupthink in other historic examples of cohesive
decision-making groups, such as the British prime minister Neville Chamberlain’s inner circle (who
supported the policy of appeasement of Hitler, despite repeated warnings that it would have adverse
consequences) and the U.S. President Truman’s advisory group (who supported the decision to
escalate the war in North Korea despite the intelligence that U.S. entry into North Korea would be
met with armed resistance from the Chinese).
Groupthink is, of course, not confined to the domain of foreign policy. Numerous incidents and
disastrous consequences of groupthink have also been documented in the business context. The most
notorious cases include: in the 1980s, BeechNut Nutrition Corporation, the then second largest
producer of baby food in the US, selling artificially flavoured sugar water as apple juice; in the 1990s,
the wrongdoings by Salomon Brothers in the Treasury auction; and, in the 2000s, the WorldCom
accounting fraud scandal (Scharff, 2005).
Janis (1982)identified eight main symptoms of groupthink:
1. an illusion of invulnerability.
2. an illusion of morality.
3. rationalization.
4. stereotyping.
5. self-censorship.
6. an illusion of unanimity.
7. direct pressure on dissidents, and
8. reliance upon self-appointed mind-guards.

These symptoms reflect the development of shared understandings and group norms that support
group cohesion. As we noted earlier, cohesion is generally considered a virtue, but also has a
downside. As reflected in groupthink, cohesion may lead to a decline in reality testing and in the
capacity for critical judgement and, ultimately, to poor decision making.
Groupthink results in the following outcomes (Janis and Mann, 1977):
1. Incomplete survey of alternatives.
2. Incomplete survey of objectives.
3. Failure to examine risks of preferred choice.
4. Poor information search.
5. Selective bias in processing information at hand.
6. Failure to reappraise alternatives.
7. Failure to work out contingency plans.
Ultimately, groupthink results in the decisions that are poorly informed, irrational and/or unethical.
How do you limit groupthink? The suggestions focus on the ways to encourage critical evaluation of
ideas (Sims, 1992: 659-661). One possible remedy is to appoint a devil’s advocate, to identify potential
pitfalls of the proposed course of action. Another recommendation is to split the group into subgroups
and task them with developing - and then presenting and debating - the alternative solutions. Yet
another alternative is to bring in outside experts to challenge the group.
5.6.2 Group polarisation
Groups are often tasked with decision-making in the belief that a group would produce a more
balanced, middle-ground solution than any solution that could be devised by individuals working
alone. The underlying assumption is that the group would average out the individual opinions and
arrive at a happy median.
Contrary to this belief, research demonstrates that groups tend to make decisions that are more
extreme than the average individual in the group would produce, due to the phenomenon of group
polarisation. Group polarisation is the tendency for group discussion to magnify the dominant initial
inclinations of group members.

Polarisation does not mean that group members will shift to the poles and that the variance within
the group will increase accordingly. Instead, it suggests that the groups would coalesce not toward
the middle of the original dispositions of their members but toward a more extreme position in the
direction indicated by these dispositions.
In particular, group polarisation implies that:
1. when individual members of a group are generally disposed toward risk before group discussion,
the group’s decision will be even riskier than that of the average group member (because this
tendency was discovered first, group polarisation was initially labelled “risky shift”);
2. when individual members are predisposed towards caution before group discussion, the group’s
decision will be more cautious than that of the average member.
For example, when a group of jurors, on average, perceive a defendant favourably prior to jury
discussion, they would tend to collectively recommend a more lenient sentence following the
discussion. In contrast, if the jurors perceive a defendant unfavourably prior to discussions, they would
tend to recommend a harsher sentence following jury meetings (Myers and Lamm, 1976: 606).
Moving from a courtroom to a boardroom, a recent longitudinal (1995-2006) study of Fortune 500
CEOs’ compensation found that when outside directors tended to support relatively high CEO
compensation (vis-à-vis the market rate) prior to board discussions, they would support an even
higher CEO compensation after the discussions. Alternatively, if they tended to support relatively low
compensation before the deliberations, they would support an even lower one following the
discussion (Zhu, 2014).
Why does group polarisation occur? One explanation for group polarisation is social comparison.
People like to be perceived favourably by other group members. Once they hear what others believe,
they will adjust their position in the direction of the dominant position within the group. They want
to be more like the others. Yet, people also want to be different from the others, that is, to be like the
others, but better. So, they will shift their individual positions in the direction of the dominant opinion
within the group, but will go “one step further” in that direction, thus developing a position that is
more extreme than the group norm.
Another explanation involves information processing. In group discussions individuals are exposed to
a lot of information and arguments, and these affect their individual positions. Research suggests that
an individual’s position depends on the number and persuasiveness of pro and con arguments that
the person recalls from memory when formulating their own position. Group discussions provide
ample ammunition to spur this recall. Yet, people tend to attend more to the information that is
consistent with their own position. Such selective attention will generate more arguments in favour
of the initially preferred position – and will amplify it, pushing it in the direction of a more extreme

position. Expressing an opinion in a group discussion also produces a shift towards extreme: people
become more committed to a position after espousing support for it. Finally, corroboration from
others tends to increase confidence, and, as people become less tentative, they become more
extreme (Isenberg, 1986; Sunstein, 2007; Whyte, 1989).
How can one reduce group polarisation? The advice centres on preventing the individuals from
shifting their original position to its extreme.
Recommendations include:
• Prevent the group from splitting into subgroups (into which the members would gravitate
based on the initial similarity of positions).
• Mix membership.
• Invite outsiders to the meetings; and
• Focus the group on its overall mission.
5.7 Teams
In the recent decades, the utilisation of teams in the workplace has grown considerably. The
movement toward the use of teams is reflected in the data on the increasing popularity of team
incentives: while in 1980 only 20% of Fortune 1000 companies had group pay plans, in 1990 59%
employed them and by 2002 this proportion increased to 82% (Lawler and Mohrman, 2003: 2).
Although there are no current data to capture the spread of teams, we would venture an educated
guess that pretty much every organization these days uses teams of some sort.
5.7.1 What is a team?
Defined simply, a team is a small group of interdependent individuals who share responsibility for
outcomes. A more complex definition describes a team as two or more individuals who:
• socially interact (face-to-face or, increasingly, virtually),

• share one or more common goals,
• are brought together to perform organizationally relevant tasks,
• exhibit interdependencies with respect to workflow, goals, and outcomes,
• have different roles and responsibilities, and
• are together embedded in an encompassing organizational system, with boundaries and
linkages to the broader system context and task environment (Kozlowski and Ilgen 2006: 79).
Team is a special kind of group. Therefore, everything we have discussed so far about groups equally
applies to teams. However, teams also have some unique characteristics. In particular, the

interdependence between team members and the complexity of teamwork require that team
members (Salas et al., 2000: 341):
• possess complementary knowledge, abilities, and skills.

• are able to co-ordinate and adjust their actions to those of other members.
• are able to exchange information and resources dynamically (“on the go”).
• are committed and motivated to work towards a common goal.
Teams are used - and useful – where and when:
• the work is more complex and/or voluminous than one person can handle; and
• knowledge, skills, and abilities required to perform the task are dispersed across
organizational members.
5.7.2 Types of teams
A recent article identified 42 different types of teams(Hollenbeck et al., 2012). The most common
types of teams are:
• Advice teams that produce information for decision making (e.g. quality circles).
• Production teams that perform day-to-day core operations in a stable group (e.g. assembly
team, maintenance team).
• Action teams that execute brief performances repeated under new conditions (e.g. operating
theatre team, sports team).
• Project teams that combine people from different areas to accomplish a particular task (e.g.
cross-functional team, product design team).
• Top management teams that integrate activities of subunits across business functions.
5.7.3 Describing teams: A “Global Positioning System” framework
The existing variety of teams appears to be so extensive as to defy categorisation into neat typologies.
To solve this problem, Hollenbeck et al. (2012) proposed a new conceptual framework for describing
teams. The framework includes three dimensions:

1. Skill differentiation – who performs various tasks.
2. Authority differentiation – who has authority to make various decisions when there is
disagreement.
3. Temporal stability – how short term or long-lasting is the team. Hollenbeck et al. (2012)
metaphorically describe this framework as a ‘global positioning system’ (GPS) for teams. And you
can, indeed, think about these as three axes that define a particular team’s position within the
space of all possible teams (like latitude, longitude, and altitude).
“Global positioning system” framework for analysing teams
Teams vary on these three crucial dimensions, and this variation considerably impacts their
performance. Let’s look at the GPS framework more closely.
Skill differentiation
Skill differentiation is interpreted here broadly, to cover differences in experience, education, culture,
gender, or any other factor where differentiation is likely to have an impact on the ability of the team
to perform the work. If team members are part of the team because they bring a unique perspective
to the work that would be missing without them, then this reflects skill differentiation (as
conceptualised in this framework).

Skill differentiation is a continuum:
• Some teams are characterised by high skill differentiation. In such teams it typically takes a
long time to develop the abilities associated with specific team members, and, thus,
individuals are not easily interchangeable. At the high end of this continuum, we find cross-
functional teams, whose defining characteristic is the different functional backgrounds of
team members. They are followed by extreme action teams, composed of members who have
different skills but which regularly have to incorporate new members, each of whom must
have a set of common core skills. Crews are then further along the continuum, characterized
by high levels of role differentiation and role standardization. Crews are lower on skill
differentiation, because in some cases all members might be new to the current crew and are,
thus, substitutable in this sense. An operating team, including a surgeon, anaesthesiologist,
and nurse, each of whom have their own unique skill set, would fall into this category.
• In contrast, teams that are characterized by low skill differentiation have members who are
high in substitutability. In such teams, members are not bound to one unique role, and more
than one team member can quite easily fulfil different roles. For example, fully cross-trained
teams would meet this definition. We would also include here the teams where training is not
that critical because the low scope of the tasks means that almost anyone could pick up the
skills quickly.
A team that is very high in skill differentiation may encounter communication difficulties attributable
to differences in perspectives, preferences, language, and experiences embodied in different
members. These problems can be ameliorated by reducing skill differentiation; this could be achieved,
for example, by increasing the level of cross-training of all members.
Alternatively, if a team is struggling with a complex problem because the members have generic skills
but lack highly specialized knowledge, then a shift in the alternative direction – towards greater skill
differentiation - might be required.
Authority Differentiation
Like skill differentiation, authority differentiation is a continuum.
• At the high end of this continuum are judge-adviser systems, where the judge and the advisers
do not share in the outcome of the decision. Also high on this dimension, but a little less so
than judge-adviser systems, are hierarchical decision-making teams, where those providing
input are affected by the decision rendered by the authority figure. This is the case with
traditional work teams, which are directed by supervisors who make most of the decisions.
Authority differentiation is somewhat lower but still relatively high in teams where, in the face
of disagreement, one person is formally assigned the leadership role and unilaterally makes
the decision.

• Teams in which leadership is emergent yet stable over time would rank intermediate on this
continuum, slightly higher than teams that rely on situation-specific emergent leadership or
rotated leadership.
• At the lower end of the continuum are the teams in which no one possesses an inordinate
amount of influence. For example, in the face of disagreement, the team may resolve the
conflict via a public debate or through voting procedures that may (or may not) be made
public (secret ballots) and that may (or may not) follow a public debate. At this end of the
continuum we find teams where decision authority lies in the hands of the team members
themselves, such as self-managing teams that vote or autonomous work teams that rely on
consensus.
A team with a high level of authority differentiation might encounter implementation problems due
to the lack of team members’ commitment, the lack of understanding of decisions, or the inability to
develop future leaders. A team with such problems may want to move towards less authority
differentiation – either by a small degree (say, by introducing rotated leadership among the members)
or more radically (by instituting self-management that would require consensus on most decisions).
Alternatively, if the team is low on authority differentiation, it may encounter the typical problems of
teams that rely on consensus, such as slow decision making or high levels of public conflict or lack of
accountability and diffusion of responsibility. A team with this set of problems may want to move
towards higher authority differentiation - either by a small degree (e.g. agree upon an informal
emergent leader) or more radically (make decision making hierarchical, where one person has
unilateral and formal authority to render decisions after obtaining input from members).
Temporal Stability
Finally, temporal stability is also a continuum:
• At the high end of this continuum, teams are stable and have a history and future together,
with membership that does not change often or very easily. This includes “real teams”, where
members may work together for as long as ten years. Also high but slightly lower on this
continuum are ongoing teams, intact teams and long-term teams, many of which work
together for up to a year on specific projects.
• In contrast, the ad hoc teams are an exemplar of teams scoring at the low end of the
continuum, as are short-term teams. Some student project teams may work together for ten
to fifteen weeks, some advice groups may meet three to five times over the course of two to
eight weeks, and some one-shot laboratory teams may only work together for a few hours.
If a highly stable team seems to lack creativity or is experiencing groupthink, then the team might
benefit from injecting new and different members (or removing some old and traditional members),
thus lowering its temporal stability.

Alternatively, if a team is lacking in identification because people enter and exit at will, making it
impossible to even discern who is on and off the team, then you need to strengthen the boundary and
create greater temporal stability.
Implications for Management
The purpose of a GPS is not just in determining the coordinates of a current position but also in helping
to determine the direction of travel. Similarly, the ‘GPS for teams’ framework does more than just
assist in describing, comparing and contrasting teams.
Firstly, the framework can serve as a diagnostic tool. It can help you to:
• locate where you own team is in this conceptual space;

• identify the typical virtues and liabilities associated with this location; and
• predict the likely implications of moving the team to a different location via restructuring or
membership change.
For instance, if a team takes too long to arrive at a decision, then the authority structure might be the
culprit. If a team is suffering from communication problems, then the skill differentiation may be an
issue. predict the likely implications for moving the team to a different space via restructuring or
membership change.
Secondly, the framework can help to solve the common team problems associated with skill
differentiation, authority differentiation and temporal stability.
5.8 Team effectiveness
A general model of team effectiveness is called the Input-Process-Outcome (IPO) model. The model
suggests that team’s inputs affect team’s outcomes through team’s processes (Mathieu et al., 2014).
Inputs are the antecedent factors that enable and constrain members’ interactions. These factors
include individual team member characteristics (e.g. competencies, personalities), team-level factors
(e.g. task structure, leader influences), organizational context (e.g. organizational culture, HRM
system) and a broader environmental context (e.g. environmental complexity).
These various antecedents combine to drive team processes, which describe members’ interactions
directed toward task accomplishment. Processes are important because they describe how team
inputs are transformed into outcomes.

Outcomes are results and by-products of team activity. Broadly speaking, these include performance
(e.g. quality and quantity) and members’ affective reactions (such as satisfaction and commitment).
In what follows will look more closely into how teams’ inputs and processes affect their outcomes.
Input-Process-Outcome model of team effectiveness
5.8.1 Inputs
Four types of inputs contribute to team effectiveness: individual characteristics, team characteristics,
organizational context and environmental context.
Individual Characteristics
Individual characteristics of team members are a key input into team’s effectiveness. To compose an
effective team, you need to consider several factors (Mathieu et al., 2014):
• Job-specific KSAOs. Firstly, you need to optimise the fit between an individual and the
demands of the position they would occupy within the team. (This, of course, hinge on the
premise that the team has discernible positions, so that individual member’s competencies
could be matched to job demands.) In this regard, selection of a team member would follow
the standard HRM selection principles and would address the question of job- or position-
specific KSAOs.
• Team-generic KSAOs. You also need to address the additional demands that working in a team
would impose on an individual, Therefore, you need to include into your selection criteria the
team-generic KSAOs, such as individual’s team orientation, cooperativeness, and organising
skills.
• Team profile. Finally, you need to view the team as a whole and look at the team profile. In
particular, you need to consider the average level of various attributes in a team (e.g. average
cognitive ability), the distribution of various attributes (e.g. functional diversity), and the
mixes and balances of specific attributes (e.g. personalities; presence of particular skills or
knowledge somewhere in the team). For instance, the higher the average cognitive ability of
team members, the more effective would be the team. Personality traits that have the
strongest effect on team performance are conscientiousness, agreeableness and emotional
stability. Diversity, both demographic and functional, is important, particularly when the
team’s tasks require innovation and creativity. (Recall here our earlier discussion of
homogeneous and heterogeneous groups.)

Team characteristics
Team structure includes the usual formal means of coordinating team efforts, such as work rules and
procedures, job descriptions, and leadership (whether it is stable or rotating, individual or shared).
Team structure also includes the patterns of informal interpersonal relations, such as communication
patterns between team members, and power structure within the team. Structural characteristics
significantly influence team effectiveness.
Team effectiveness is also affected by the type of team task, team size and team development stage.
The principles we have discussed earlier with regard to these effect of these factors on group dynamics
and performance are generally applicable to teams as well.
Organizational context
Organizational context and support systems are crucial for team effectiveness. Obviously, teams need
to have access to resources they need to do their work, including tools and equipment to carry out
their tasks, but also appropriate communication technologies to coordinate their work. Teams need
the necessary information to act.
The organization’s HRM system needs to be configured to support team working. This includes reward
systems that combine individual and group rewards and team-building training, particularly in role-
clarification, goal-setting, interpersonal and problem solving skills.
Finally the organizational culture should be ‘team-friendly’.
Environmental context
Broader environment, such as national cultural values that may be more or less supportive of
cooperative and collaborative behaviors, also have significant impact on team effectiveness.
5.8.2 Processes
There are many processes, activities and interactions that occur in teams and contribute to the
effectiveness of teams. These are usually classified into four categories:
1. taskwork – what team is actually doing (the technical side).
2. teamwork – how team members interact (the relationship side). To illustrate, the seamless
communication between a surgeon, nurse, and anaesthesiologist would qualify as teamwork,
while the technical activities of these practitioners would constitute taskwork. The synergy

between a quarterback and a receiver to complete a passing play would be teamwork, and
throwing or catching ball would be taskwork.
3. communication, and
4. team states
Teamwork processes
According to the latest meta-analysis (LePine et al., 2008), there are 10 teamwork behaviors that
significantly contribute both to the effective team performance and to the team members’
satisfaction. These behaviors can be grouped into three types of processes: (1) transition processes,
(2) action processes, and (3) interpersonal processes.
Transition processes encompass the activities that occur when the team is either preparing for action
or is reflection on its previous actions, and include:
1. Mission analysis – identification and evaluation of team tasks, challenges, environmental

conditions, and resources available for performing the team’s work.
2. Goal specification – identification and prioritization of team goals.

3. Strategy formulation and planning – developing courses of actions and contingency plans, as well
as making adjustments to plans in light of changes in the team’s environment.
Action processes are the activities that occur as the team performs the tasks and works toward the
accomplishment of its goals and objective:
4. Monitoring progress toward goals – members paying attention to, interpreting, and
communicating information necessary for the team to gauge its progress toward goals.
5. Systems monitoring – tracking team resources (e.g. money) and factors in the team environment
(e.g. inventories) to ensure that the team has what it needs to accomplish its goals and objectives.
6. Team monitoring and backup behavior – members going out of their way to assist other members
in the performance of their tasks, including (a) indirect help (feedback or coaching), direct help
(assistance with the task, or (c) compensating for teammates (e.g., taking on the task of a
teammate who needs assistance).
7. Coordination – synchronizing or aligning the activities of the team members with respect to their
sequence and timing.
Interpersonal processes encompass the activities that are always ongoing and focus on managing
interpersonal relationships:
8. Conflict management – showing mutual respect, willingness to compromise, and developing

norms that promote cooperation and harmony.
9. Motivating and confidence building – developing and maintaining members’ motivation and
confidence with regard to the team accomplishing its goals and objectives
10. Affect management – fostering emotional balance, togetherness, and effective coping with
stressful demands and frustration.
Why do you need to know these ten teamwork processes? As a manager, your role is to ensure that
your team performs effectively. To achieve effective performance all ten teamwork processes must
operate properly. Therefore, you can use the list of ten teamwork processes as your checklist, to see
whether they do, in fact, take place in your team. You ought to either lead and facilitate these
processes yourself or make sure that some or all team members do so. You should monitor these
processes and intervene and repair if they are not working. You also need to choose team members
who can perform these processes or train team members in the relevant skills.
You also can use the list of ten effective teamwork processes as a diagnostic tool, to examine potential
sources of good and subpar performance in a team. For example, do your team members report

difficulties in interpreting their performance and developing performance strategies? Or, perhaps,
they know what they want to do but experience coordination breakdowns? Or may be a failure to
manage interpersonal relationships is undermining their performance? Whatever the problem is, it is
important, first, to establish the source of the problem in order to decide exactly what intervention is
needed.
Finally, you can also use the list of ten effective teamwork processes to tailor your team-building
training to the needs of your team (rather than merely rolling out a generic team-building
intervention).
Team roles
One way to help a team is to ensure that there is someone in a team to perform the roles associated
with these taskwork and teamwork processes. Team role is defined as “a pattern of behavior
characteristic of the way in which one team member interacts with another in order to facilitate the
progress of the team as a whole” (Aritzeta et al., 2007: 99). Team role is not the same as the functional
role. The functional role refers to the technical skills and knowledge relevant to the job.
The team role model has been developed and popularised by Meredith Belbin (Belbin, 1993). The
model identifies nine team roles:
1. Plant – creative and imaginative – generates ideas.
2. Resource Investigator – outgoing and communicative – explores opportunities and develops

contacts.
3. Co-ordinator – mature and confident – identifies talent and clarifies the goals.
4. Shaper – dynamic, thrives on pressure – helps to overcome the obstacles.
5. Monitor Evaluator – strategic and discerning – sees all options and judges accurately.
6. Teamworker – perceptive and diplomatic – listens and averts friction.
7. Implementer – reliable and efficient – turns ideas into actions and organises what needs to be
done.
8. Completer Finisher – painstaking and conscientious – polishes and perfects. 9. Specialist – single-
minded and dedicated – provides knowledge and skills in rare supply.
The team role model effectively defines nine different responsibilities that the team needs to fulfil in
order to perform effectively. In particular, a team has to take care of both the task at hand and the

wellbeing of the team members. Someone in the team should procure the necessary resources to
accomplish the task; someone has to coordinate the activities of individual members; someone has to
solve problems; someone has to make sure any conflicts are peacefully resolved; someone has to
ascertain that the members agree on a common course of action; and so forth. The team role model
is based on the idea of a balance: If all team roles are fulfilled in the team then it will perform better
than other teams without the balance.
The model suggest that particular individuals, due to their personality, abilities and skills may be best
positioned to perform these roles.

SCORING
To interpret the self-perception inventory transfer the scores from the questionnaire to the following
table and then sum up the totals for each of the nine columns. To interpret the self-perception
inventory, please transfer the scores from the questionnaire into the following table and then sum up
the totals for each of the nine columns.

INTEPRETATION
Practical implications of team roles
Since each team is required to have a balance of roles, it is worth assessing what roles prospective
team members can play before deciding on team membership – and to ascertain that all roles in a
team are covered. Belbin developed a questionnaire to evaluate individual preferences for particular
roles. In your Portfolio Exercise, you will have an opportunity to assess your own preferences, using
this questionnaire.
If the team member preferences cannot be ascertained beforehand, a second best solution is to
examine what roles the current team members can play. You then need to make sure that there is

someone to cover each role, even if one person has to play two or more roles or if their main or
additional roles are only their second preferred choice.
5.9 Training teams
How can teams be trained to perform better?
5.9.1 Types of team-training methods
There are four types of team training methods:
1. didactic education in a classroom setting, such as lecturing about the importance of providing
social support within the team or promoting ways to manage interpersonal conflict among
teammates;
2. interactive workshop format, in which team members take part in various group activities, such
as having discussions about the team’s purposes and goals or working through case studies
together;
3. simulation training, in which teams enact various teamwork skills, such as interpersonal
communication and coordination, in an environment that mimics upcoming team tasks (e.g.
airline simulators or medical patient manikins);
4. team reviews in-situ (i.e. where the team actually performs its tasks), which allow teams to
monitor and assess the quality of their teamwork on an ongoing basis. The team reviews may
involve team briefings before, during and after the team task execution.
Which of these training formats work best? The results of the latest meta-analysis of teamwork
training (McEwan et al., 2017) delivers the good news: all four work – although the first one (didactic
classroom education) is somewhat less effective than the other three.
5.9.2 Team-building interventions
There are also various team-building interventions – actions that managers may take to improve team
processes. Now, the expression “team-building” usually evokes an image of some fun and some weird
activities that organizations make their employees do to create “team spirit” – from treasure hunts to
circus acts, from speedboat racing to cooking masterclasses. This is, however, not what we formally
mean by team-building interventions.

The official list is much more sober. There are four types of team-building interventions (Klein et al.,
2009):
• Goal-setting interventions. This means getting team members involved in setting objectives
and developing action plans to achieve goals. Goal-setting strengthens team member
motivation to achieve goals and helps to determine what future resources are needed
• Interventions focused on interpersonal relations. This entails increasing teamwork skills, in
particular, mutual supportiveness, communication and sharing of feelings. This helps team
members develop trust in one another and confidence in the team. As they do so, team
cohesiveness increases. Improving team-work skills, however, normally requires to use an
expert facilitator to develop mutual trust and open communication between team members.
• Role clarification. This means engaging team members in conversation about their respective
roles within the team and making sure everyone understands who does what (and why!).
• Problem solving interventions. This essentially means identifying any task related problems
within the team and making the team address these.
Regrettably, there has not been much research on this important issue. The latest meta-analysis of all
studies on team-building interventions published from 1950 to 2007 (Klein et al., 2009) identified only
20 articles and 60 correlations relevant to the issue. Still, this is the “best available evidence”, and
according to this evidence, all types of intervention have a moderate effect on outcomes, but the goal-
setting and role-clarification components have the largest effects (0.34 and 0.32 respectively), while
problem solving and teamwork focused interventions have lower effects (both at 0.23). Incidentally,
although teams of all sizes benefit from team building, large teams appear to benefit the most.
5.10 Summing up
Working in groups and teams is a ubiquitous feature of the modern organizational life. Groups and
teams are, however, not mere aggregates of individuals. They have their own properties and
processes that affect the way in which individuals operate. Individuals change their behavior when
they work in a group: their motivation, opinions and actions alter through contact, interdependence
and communications with others. How large or small, diverse or homogenous, young or mature,
cohesive or non-cohesive the group is and what tasks it is called to undertake significantly influence
the performance of a group; and, with teams, the further considerations include the interdependence
between team members and the balance of team roles.

Putting together an effective group or team is a challenge, and the knowledge of factors affecting
group dynamics and team effectiveness is an important asset to meet this challenge.
5.11 TAKEAWAYS
1. Group dynamics and performance are affected by group size, composition, cohesion, group
norms, extent of group development, type of task, and members’ motivation.
2. Smaller groups tend to perform better than larger groups and their members are more satisfied.
3. In group context, diversity refers to differences between individuals on any attributes that may
lead to the perception that another person is different from the self. More homogeneous groups
perform better on well-known tasks and take less time to reach a decision. More diverse groups
perform better on tasks requiring creativity.
4. Cohesion is the tendency for a group to stick together and remain united. Cohesion is related to
interpersonal attraction between group members, group members’ attraction to the group as a
whole and group properties such as common fate. More cohesive groups tend to perform better,
but may be difficult to change and may develop critical or even hostile attitudes towards people
outside the group.
5. Group norms are informal rules that groups adopt to regulate group members’ behavior. Norms
facilitate group survival, make the expected behavior predictable, help to avoid interpersonal
problems, and express group’s values and identity. They emerge from explicit statements of
expectation by group leader or member, critical events in the group history, or the first pattern of
behavior that emerges in a group. Group norms are enforced through reward and punishment.
Deviance is the violation of the norms of a group. Dissent is the expression of disagreement with
group norms, action, or decision. Dissent and deviance serve important functions. Deviance can
sharpen the group’s understanding of its values and can facilitate social change. Dissent can force
the group’s majority to think outside the box.
6. In a five-stage model of group development, groups are seen as proceeding through the distinct
stages of forming, storming, norming, performing and adjourning. In each of these stages, the
group must attend to both the completion of the task (task activity) and the interpersonal
relationships within the group (group structure). In a punctuated equilibrium model of group
development (that applies to temporary groups with a set deadline), group development occurs
in two phases, separated by a transition period.
7. Whether a group performs better than an individual working alone depends on the way in which
individual contributions are combined to produce the group product, i.e. on the type of group

task. There are five types of group tasks: additive, compensatory, conjunctive, disjunctive and
complementary.
8. Working in a group alters individual’s motivation so that sometimes people perform better – and
sometimes worse – in a group compared to working alone. Motivation losses in groups are due to
free riding, the sucker effect, social anxiety, soldiering, and social loafing. To reduce social loafing,
it is important to develop eam loyalty, emphasise mutual interdependence between team
members, stimulate competition with other groups and ensure that the tasks that the group is
called to perform are meaningful tasks for the group to perform. Motivation gains are due to social
compensation and Kohler effect. To increase motivation gains, make individual contribution to
the group product identifiable, ensure that the group task is meaningful, and make group success
important to all group members.
9. Two problems characterise decision making in groups: groupthink and group polarisation.
Groupthink occurs when the members’ striving for unanimity overrides their motivation to
realistically appraise alternative courses of action. Groupthink results in the decisions that are
poorly informed, irrational and/or unethical. To limit group think, critical evaluation of ideas
should be encouraged. Group polarisation is the tendency for group discussion to magnify the
dominant initial inclinations of group members. To limit group polarisation, prevent the group
from splitting into subgroups and focus on the group’s overall mission. Inviting outsiders is
beneficial for limiting both groupthink and group polarisation.
10. Team is a small group of interdependent individuals who share responsibility for outcomes. There
are many types of teams, including production, action, project, and top management teams.
Teams can be described through a framework of three dimensions: skill differentiation, authority
differentiation and temporal stability. This framework can serve as a diagnostic tool to identify
the sources of team performance problems and the potential solutions.
11. A general model of team effectiveness is the Input-Process-Outcome model that suggests that
team’s inputs affect team’s outcomes through team’s processes. Inputs include individual, team,
and organizational attributes and environmental contexts. Processes include taskwork, teamwork,
communication and team states.
12. It is important that team members are able to perform the functions (roles) associated with
taskwork and teamwork processes. The Belbin’s team roles model identifies nine team roles and
suggests that particular individuals, due to their personality, abilities and skills, may be best
positioned to perform these roles. These preferences can be established by administering Belbin’s
Team Roles Self-Perception Inventory.
13. To improve team performance, teams should be trained in teamwork. There are four types of
team training: didactic education, interactive workshops, simulation training and team reviews in
situ. All are considered effective (though classroom education is less so). There are also four types

of team building interventions: goal-setting, role clarification, teamwork-focused interventions,
and problem solving interventions. The first two have the largest effects on team performance.
Note: Please remember also to review Takeaways provided in the textbook Chapters 11 and 12.
Section 6: Leadership
After completing this section you will be able to:
• explain the relationship between leadership and management and the practical implications
for organizations
• assess the key perspectives on leadership and their contribution to understanding effective
practice
• explain the dynamics of leadership and followership and the processes of influence that
underpin these relationships
• evaluate positive and negative manifestations of leadership
6.2 Linked readings
Organizational Behavior, Chapter 13 Leadership: Power and Negotiation
Organizational Behavior, Chapter 14 Leadership: Styles and Behaviors
6.3 Defining leadership
There has been much interest in the concept and application of leadership in recent years. Pick up a
newspaper and you’ll find leadership in the stories in the politics section, business section, or even
the sports pages. In organizations, leadership is being increasingly seen as a potential source of
competitive advantage - and huge salaries are justified on this basis. We see the word ‘leadership’
mentioned in the requirements of many job adverts or job descriptions. Indeed, it sometimes seems
that everything rises or falls on leadership – problems are often attributed to a ‘failure in leadership’.
Many of the recent corporate scandals and economic crisis have been attributed to forms of ‘toxic’
leadership. Here leadership remains of central importance, but is itself the problem.

So why is there is such interest in the concept of leadership? And how this fits with traditional ideas
about organizational management? Perhaps part of the answer is to do with developing patterns of
organizational life and changes in social expectations of individuals within the working environment.
Traditional organizations with strongly hierarchical structures are becoming rarer, and newer forms
of both commercial and public sector organization tend to be more flexible and task- or client-focused.
This kind of organizational structure works against the maintenance of strong hierarchies and requires
individual managers to exercise a different form of authority from that conferred by virtue of position.
The GLOBE project (a ten-year project exploring the relationship of culture to leadership involving 127
investigators from 62 nations) defines leadership as ‘the ability to motivate, influence, and enable
individuals to contribute to the objectives of organizations of which they are the members’ (House et
al., 2004: xxii).
However, is leadership simply about the leader? Or is leadership a process involving (1) the leader (or
leaders), (2) the individual members of the group or team, (3) the team as a whole, and (4) the team’s
goal or objective (whatever that is)? And does leadership only reside in the appointed leader, or can
leadership be practiced by different people at different organizational levels, at different times?
A helpful framework for presenting different perspectives on how we define leadership is offered by
Keith Grint (2005), who uses the terms “who”, “what”, “where”, and “how” to clarify what leadership
is and does:
• Leadership is who you are, that is, the qualities you possess that makes you a leader. This is
leadership as Person.
• Leadership is what you do, that is, your achievements that make you a leader. This is
leadership as Results.
• Leadership is where you sit, that is, your job title that makes you a leader. This is leadership
as Position.
• Leadership is how you do it, that is, your approach to getting things done through the group
that makes you a leader. This is leadership as Process.
You’ll find these different emphases in the perspectives that we will encounter.
6.3.1 Are managers leaders?
If leadership is not simply about position, we may begin to ask, who then are we talking about when
we use the word leader in organization? For example, are all managers leaders? And what is the
difference between leadership and management?

Management is usually seen as a position in an organizational hierarchy. Managers are formally
appointed and their power comes from above – from someone higher up in the hierarchy who
appointed them. Power is vested in the position in the hierarchy that the manager occupies.
Leadership, in contrast, is tied less to position. Rather than appointed, leaders might be seen to
emerge through relationships with others. Leader’s power comes from below – from the followers. It
is the followers who relinquish part of their independence and give to the leader the power to guide
them.
So, managers might or might not be leaders – and leaders might or might not be managers. Indeed to
a large extent the contemporary emphasis on the importance of leadership in organizations depends
on differentiating it from “management”.
The leadership author John Kotter has been particularly influential in informing this distinction. Kotter
(1996: 25) suggests that “Management is a set of processes that can keep a complicated system of
people and technology running smoothly. The most important aspects of management include
planning, budgeting, organizing, staffing, controlling, and problem solving. Leadership is a set of
processes that creates organizations in the first place or adapts them to significantly changing
circumstances. Leadership defines what the future should look like, aligns people with that vision, and
inspires them to make it happen despite the obstacles. So leadership is seen to involve developing an
initial vision and inspiring others via an overview of how that vision may be achieved. Management
involves translating the vision into reality by guiding the day to day contributions of people.”
It is tempting to overstate the differences between leadership and management. There is a danger of
seeing oneself as being either a pure leader (going around inspiring people without any consideration
for practical matters) or a pure manager (seeing people as just another resource to be controlled). In
fact the processes of leadership and management are so closely related that it is only on paper that
we are able to separate the two concepts.
Indeed in an interesting twist, in relation to financial services industry, Birkinshaw (2010) argues that
“’failure of management contributed to the recent banking crisis. This stemmed from the
‘aggrandisement of leadership at the expense of management’.” Birkinshaw suggests that sustainable
goals can only be realised if key individuals demonstrate both management and leadership qualities.
6.4 Leadership: power and influence
Power can be defined as the ability to influence the behavior of others and resist unwanted influence
in return. Influence is the use of an actual behavior that causes behavioral or attitudinal changes in
others.

6.5 Leadership theories
What interests you most when you read, hear and think about leadership? It’s likely that your
questions are the same ones that have occupied the scholarship on leadership over the years; Are you
born a leader or can you make yourself a leader? What do you need to be and what do you need to
do to become a leader? Let’s look at the answers that the study of leadership has turned up. We will
take a journey that looks at a number of key perspectives on leadership.
6.5.1 Traits approach
The traits approach to leadership suggests that there are innate individual characteristics that account
for leadership. Some people are born with such traits (or develop them early on in their life) and hence
are predisposed to lead – and be perceived by other people as ‘leaders’ or ‘leadership material’.
This approach is intuitively appealing. There is, indeed, a tendency in everyday life to see leadership
as a ‘special’ quality possessed by particular, exceptional individuals. We often speak of ‘natural born
leaders’ who have some innate or God-given quality. Indeed the early approaches to understanding
leadership effectiveness rested on this assumption and attempted to identify the characteristics of
successful leaders. It was believed that successful leaders shared common characteristics and that
these characteristics enabled them to be effective in whatever situation they found themselves.
There have been many debates on this subject, and at some point trait theories have been summarily
dismissed as ‘wrong’. But we have come to appreciate that there are, indeed, specific individual traits
that makes it more likely that a particular person would emerge as a leader. In this more contemporary
account, the leader’s traits are seen as only part of the picture. They provide an important leadership
‘advantage’, but they need to be considered alongside other leadership components such as the
followers, the situation and the objectives to be achieved.
The 21st century take on leadership traits suggests that some people tend to gravitate to leadership
positions in whatever they do and that this occurs for two possible reasons. Firstly, these individuals

may have a greater than average ability to sense the requirements of a situation and a repertoire of
behaviors to adapt to the situation. Secondly, certain traits induce other people to perceive the
individual as someone who has leadership ability.
Which personal characteristics are particularly important? There is no consensus on the matter and
various researchers have emphasised different traits.
For example, Gary Yukl’s (2002) research shows that the following personal characteristics are
important for leadership effectiveness:
• a high internal locus of control (i.e. strong belief that people’s responses, choices and actions
have a much more important effect on their lives than events and circumstances that happen
to them);
• a high degree of emotional maturity and stability (including self-awareness, confidence, and
self-regulation);
• high socialised power motivation, which means being motivated to influence people and
events for the benefit of others;
• a moderate but not excessively high achievement orientation (that is, being driven to succeed,
but not so driven that you cannot work within a team, demonstrating patience, tolerance, and
cooperation)
• a low need for affiliation (this means that being liked is not at the top of a person’s priorities,
and therefore that, he or she is able to make difficult decisions even when others may not like
them for it).
According to the meta-analysis by Judge et al. (2002), the Big Five personality dimensions (which you
have explored earlier in this course) are strongly correlated with whether a particular person is
perceived as a leader and whether a leader is perceived as effective. In particular, people high on
extroversion, conscientiousness, openness and emotional stability are more likely to be perceived as
leaders – and as effective leaders. (Agreeableness, however, has a very weak correlation with
perceived leadership and leadership effectiveness.)
6.5.2 Behavior or style approach
The behavior or style approach suggests that leadership comes from particular behaviors or behavioral
style – and that there are winning and losing styles. Behavior is an acquired rather than innate
attribute of the person. Certain behaviors are more effective than others. Thus, some suggest that the
winning style is a combination of showing high concern for task completion and looking after
follower’s satisfaction.
The basic premise of this approach is that it is behavior (a learned phenomenon) and not traits
(inherent attributes) that determines the effectiveness of a leader. This approach therefore offers

more potential for leadership training and development. Leaders can be ‘made’ by learning the
appropriate behaviors. It should be noted that this remains a leader-centred view of leadership. But
we are no longer just interested in leader qualities but are also concerned about behaviors (which are
easier to observe and more conceivable to put into practice).
A strong theme in this approach is the idea that if you strike the right balance between a concern for
people and a concern for production, you can be an effective leader. Various paired terms have been
suggested to describe these two concerns: production-centred versus employee-centred, directive
versus supportive, task-orientated versus relationship-orientated, and initiating structure versus
consideration. The core ideas, however, are similar:
• Concern for production (or “initiating structure”) relates to the leader’s focus on the
achievement of concrete work objectives and the ways to organise people and activities in
order to achieve high levels of productivity.
• Concern for people (or “consideration”) relates to the leader’s focus on their followers as
people – their needs, interests, problems, development – rather than as “means to an end”.
Since leadership is about achieving an objective with and through a team of people, then it makes
sense to carefully consider both the task and the people doing it. Indeed, it has been very well
established that effective leaders tend to achieve a balance between these two areas of focus.
Two examples of the classic behavior/style leadership theories are Lewin’s styles of leadership and
Blake and Mouton’s “managerial grid”.
Lewin’s styles of leadership
A German-American psychologist Kurt Lewin and his colleagues, in the studies conducted in 1930s-
1940s, placed the styles of leaders into one of the three categories:
• Autocratic leaders: These leaders made all the major decisions and exerted a high degree of
control over followers. Thus, while followers were very clear about what to do, they were less
sure why it needed to be done, and were often unwilling to accept any responsibility when
things went wrong. They also tended to have a low level of morale and some hostility towards
each other and the leader.
• Democratic leaders: These leaders involved followers in decisions and delegated much more
responsibility to the group. This was said to lead to higher quality decisions, a much stronger
team spirit, commitment to implementing decisions and satisfaction among followers.
• Laissez-faire leaders: These leaders had a strong tendency to abdicate from the leader role.
Although they did not make decisions for followers, or exercise much control, this was not
because of a conscious desire to delegate or stimulate participation, but simply because they
had little desire to provide leadership. Thus, unless followers were competent and self-

motivated, they opted out of trying to complete tasks, and looked for their satisfaction in the
social side of group life.
Lewin’s belief was that the democratic approach was the most effective style in getting tasks
completed.
Managerial Grid
The Managerial Grid framework was developed by the US management theorists Robert Blake and
Jane Mouton (1964). The Managerial Grid was designed to emphasise the choice facing managers
between people and task orientations. The Grid represents two dimensions of leader behavior: (1)
concern for production (task-oriented leadership), plotted on the horizontal axis, and (2) concern for
people (socio-emotional leadership), plotted on the vertical axis.
Within this Grid, five styles are highlighted in particular:
• Impoverished management: The leader belonging to this category demonstrates a low

concern for people and a low concern for task and makes the absolute minimum of effort.
This style is often described as the ultimate laissez-faire approach.
• Country club style: The leader belonging to this category demonstrates a high concern for
people and a low concern for task. This style often creates a relaxed and amicable working
environment; but the failure to concentrate sufficient time and effort on the task can have
dire consequences for the long-term viability of the organization.
• Team management: The leader in this category shows a high concern for people and a high
concern for task. This approach is thought to be based on shared values and beliefs and to
create cohesion across the organization. The leader empowers others to achieve, and this
participative approach ensures that relationships are enhanced and that the tasks are
completed.
• Authority–obedience: The leader in this category shows a low concern for people and a high
concern for task. The emphasis is on coercion and control, in order to ensure the successful
completion of the task. People are treated as a means to an end.
• Middle of the road: The leader in this category demonstrates a “middleground” concern for
task and a “middle-ground” concern for people. There is a balance between the concern for
people and the concern for task, but neither is done to an excellent level.
The most effective behavior is “team management” that combines focus on task and emphasis on
people.
Your textbook provides the examples of two more recent incarnations of these approaches, when it
discusses leadership styles (autocratic, consultative, facilitative and delegative) and behaviors
(initiating structure and consideration). (See below under “Linked readings”.)

6.5.3 Contingency or situational approach
The contingency or situational approach suggests that one style of leadership or one type of behavior
cannot be suitable to all kinds of situations. Demands of a situation make certain styles or behaviors
effective – and other styles and behaviors ineffective. The situational approach to leadership tries to
identify what elements of a situation are particularly important for determining what behavior a
leader should adopt.
Different contingency theories have pinpointed different factors as important, but generally they all
boil down to the characteristics of the leader, the characteristics of the followers, and the
characteristics of the task.
Two most popular theories exemplifying this approach are (1) Vroom-Yetto-Jago model of leadership
decision-making style and (2) Hersey and Blanchard’s situational leadership model.
Vroom-Yetton-Jago model of leadership decision making style
Vroom-Yetton-Jago model (Vroom and Jago, 2009), named after the three scholars who proposed it,
is described in your textbook under the label “time-driven model of leadership”.
The model identifies seven different characteristics of the situation that dictate what leadership style
(autocratic, delegative, consultative or facilitative) would be most effective in what situations.
Depending on a combination of factors, such as whether the quality of the decision is important,
whether the decision requires team commitment, whether the leader has sufficient information to
decide on their own and so forth, the leader is advised to adopt a particular style (e.g., autocratic style,
i.e. making the decision by themselves; consultative, i.e. inviting contributions, but making the
decision on their own).
Hersey and Blanchard’s situational leadership model
Hersey and Blanchard’s (1969) situational leadership model is also described in your textbook and is
referenced there as “the life cycle theory of leadership”.
The model focuses on just two factors – both of which are related to the followers’ so called
“readiness”. The first factor is the followers’ task related readiness, i.e. their competence to complete
the task on their own or with minimal guidance. The second factor is the follower’s psychological
readiness, i.e. their commitment to the task.
Depending on how competent and how committed the followers are, the leader should adopt a
particular leadership style. Thus, if followers’ competence and commitment are low, the leader must
be very hand-on in terms of directing the followers and supporting them psychologically to perform
their task. If followers’ competence is high but they lack the commitment or enthusiasm for the task,

the leader should not direct them but should instead support them. If subordinates are highly
committed to the task but do not have sufficient competence to perform it, the leader should devote
his or her energy to provide help and direction with the task, but need not go for motivational
speeches to inspire the followers. Finally, if the followers are both committed and competent – the
leader should adopt a hands-off delegating approach.
Like style theories, contingency models focus on leader behavior; however they also examine the
situations to consider what makes one style more appropriate than others. Accordingly there is no
style appropriate for all situations. It’s also the case that different contingency theories differ as to
the situational factors that are taken to be the most important. One could argue that since the
theories all deal with slightly different combinations of circumstances, they are complementary rather
than contradictory.
However the assumption that leaders are able to vary their style to meet the needs of the situation
may be, in practice, unrealisable. Not only is it difficult people to change so easily, it is often impossible
for them to fully understand the situation that they face so that they can determine the ‘correct’
leadership style to adopt. There is rarely perfect information – even if the leader was capable of
interpreting it and acting accordingly.
6.5.4 Transformational leadership approach
The perspectives that we have looked at so far – the trait approach and, in particular, style and
situational/contingency theories – represent a ‘transactional’ approach to leadership. Those in
leadership positions strive to influence subordinate behavior in order to achieve desired objectives.
Positive reinforcement is a key element. Subordinates are offered appropriate rewards for behavior
consistent with realising these objectives.
Transactional approach implies “business as usual”. Yet, when organizations face increasingly
turbulent environments, with frequent economic shocks, growing international competition and rapid
technological advances, the methods designed to regulate the normal state of affairs no longer appear

adequate. In management theory, the response to this increasing turbulence has been to try to
identify lessons that could be learned from the leaders at the top of organization who have been able
to successfully navigate these challenging conditions.
Consequently, a number of leadership academics (e.g., Bass, 1998; Conger, 1989), began to promote
a form of leadership in which ‘visionary’ figures were able to inspire extra commitment, higher
motivation and so better performance from staff. This became known as the ‘transformational’
perspective.
6.5.5 Charismatic leadership
Charismatic leadership is similar to transformational leadership and has been sometimes described as
part of transformational leadership. The word charisma is derived from the Greek word that means
‘‘the gift of grace,’’ or ‘‘gifts presented by the gods’’. Originally, the term was used to describe an
individual’s power or attributes that could not be described by ordinary means.
While charisma is said to be internal to the leader, the power that the leader holds over another is in
the eye of the beholder. This amount of power or influence varies for different people.
What makes a leader appear charismatic? It is what they do and how they do it.
Firstly, leaders that have been deemed charismatic tend to champion a vision that is radically different
from the status quo (though not so different that followers will find it unacceptable). A good example
is communism that was a popular (albeit ill-fated) leadership vision in the 20th century.
Secondly, charismatic leaders tend to employ unconventional methods and strategies to realise the
vision. Think of Mahatma Ghandi and his nonviolent civil disobedience.

Thirdly, charismatic leaders often take personal risk and make sacrifices. Followers trust a leader who
may incur personal loss if the undertaking fails. Again, think of Ghandi and his fasting and suicide
threats.
Charismatic leaders also must project confidence, and should use a persuasive approach – often
through the use of rhetoric. Recall, for example, Martin Luther King’s speech “I have a dream” or the
famous World War II speeches of Winston Churchill.
Yet, a charismatic leader would not appear until the situation is ripe. Charismatic leaders most
frequently come to power in the situations of social or organizational uncertainty and crisis and are
often perceived as being the only ones in possession of attributes that can effectively resolve any
problems. Need for change provides an opportunity for the leader to articulate an ideological vision
when it will be best received and endorsed by followers. There comes a point where a group of people,
as they try to make sense of a chaotic situation, begin to look desperately for an individual with whom
they can forge a relationship of ‘supreme trust’, because they see them as the personification of the
change process.
So, charismatic leadership cannot be attributed to the person alone – it is a combination of a person
and a situation.
6.6 Leadership ethics
So far in this section we have concentrated on situations where the place of leadership was not
contentious. Rather it was simply a question of whether it was effective or not. Now we will begin to
consider how and when leadership itself can be the problem.
Most people are aware of the old saying that says ‘power corrupts; absolute power corrupts
absolutely’. But fewer people know the full quote:
“Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost
always bad men, even when they exercise influence and not authority, still more when you
superadd the tendency or the certainty of corruption by authority. There is no worse heresy
than that the office sanctifies the holder of it.” (Lord Acton, letter to Bishop Mandell
Creighton 1887)
Throughout history terrible consequences have resulted from the decisions made by leaders. Some
see these decisions as the result of ‘evil’. But many would reject such fundamentalism. Instead they
see unethical behavior as resulting from particular organizational and societal situations. They point
out much unethical behavior is found in ‘normal’ situations and is practised by unexceptional people.

As Grint (2005) explains, a focus on achieving particular results often leads individuals to neglect the
means by which these results are achieved. If it is only results that are rewarded, then why should
individuals consider the process that produces them? In other words, it is the structure of
organizations that creates such behavior by, for example, prioritising only financial results.
There has been an increasing concern with “toxic” leadership, when leaders can have capacity to be
destructive; reject limits to their authority and dismiss the norms and rules that apply to others;
become overly convinced in their powers and exploit their followers; and so forth (Khurana, 2002).
Consequently leadership perspectives increasingly have an important normative dimension – in other

words, considering what leadership ‘ought’ to be like. It is this concern with the ethical dimensions of
leadership that has motivated recent thought in leadership theory in the areas of authentic leadership,
ethical leadership, and servant leadership
6.6.1 Authentic leadership
Avolio and Luthans (2006: 243) define authentic leadership as “a process that draws from both
positive psychological capacities and a highly developed organizational context, which results in both
greater self-awareness and self-regulated positive behaviors on the part of leaders and associates,
fostering positive self-development”.
Fleshing this out, Walumbwa et al. (2008) have identified four components of authentic leadership:
• Self-awareness: an understanding of one’s strengths and weaknesses through exposure to

others and being aware of one’s impact on others;
• Internalised moral perspective: self-regulation that is based on internalised moral values (as
opposed to those imposed by the group, organization or society);
• Balanced processing: objective evaluation of information before making a decision, including
encouraging others to question or challenge one’s values;
• Relational transparency: being true to one’s values and expressing this to others; this involves
the open sharing of information about thoughts and feelings.
6.6.2 Servant leadership
The concept of servant leadership was first suggested n the 1970s but it has gained greater popularity
in the 21st century. The founder of this theory, Robert Greenleaf (2003) described this type of
leadership as follows: “The Servant-Leader is servant first. Servant leadership] begins with the natural
feeling that one wants to serve first. Then conscious choice brings one to aspire to lead. The best test
is this: Do those served grow as persons? Do they, while being served, become healthier, wiser, freer,
more autonomous, and more likely themselves to become servants? And, what is the effect on the

goal is the well-being of the organization, a servant-leader is genuinely concerned with serving
followers.
Several dozen models of servant leadership have been proposed. A recent review of these models has
identified the following six key servant leadership behaviors (van Dierendonck, 2010):
• Empowering and developing people. This means enabling people; fostering a proactive, self-
confident attitude among followers; giving them a sense of personal power. The servant-
leader’s belief in the intrinsic value of each individual is the central issue.
• Humility, i.e. the ability to put one’s own accomplishments and talents in a proper
perspective, as well as the ability to put the interests of others first, and also modesty (a
servant-leader retreats into the background when a task has been successfully accomplished).
• Authenticity, i.e. expressing oneself in ways that are consistent with inner thoughts and
feelings; being true to oneself and accurately representing – privately and publicly – internal
states, intentions and commitments. Authenticity manifests itself in doing wat is promised,
being honest; being visible and being vulnerable.
• Interpersonal acceptance, i.e. the ability to understand and experience the feelings of others
and where people are coming from and the ability to let go and not carry a grudge into other
situations. It includes empathy and warmth, compassion, and forgiveness even when
confronted with offences, arguments, and mistakes.
• Providing direction, which ensures that people know what is expected of them, which is
beneficial for both employees and the organization. A servantleader’s take on providing
direction is to make work dynamic and “tailor made” (based on follower abilities, needs, and
input).
• Stewardship, or the willingness to take responsibility for the larger institution and to go for
service instead of control and self-interest. Servant leaders act as role models for others. By
setting the right example, leaders can stimulate others to act in the common interest.
Stewardship is closely related to social responsibility, loyalty, and team work.
6.6.3 Ethical leadership
Ethical leadership is another popular concept. According to Yukl (2011), ethical leader is someone who
1. shows a strong concern for ethical and moral values.
2. communicates clear ethical standards for members.
3. sets an example of ethical behavior in his/her decisions and actions.
4. is honest and can be trusted to tell the truth.

5. keeps his/her actions consistent with his/her stated values (“walks the talk”).
6. is fair and unbiased when assigning tasks to members.
7. can be trusted to carry out promises and commitments.
8. insists on doing what is fair and ethical even when it is not easy.
9. acknowledges mistakes and takes responsibility for them.least privileged in society? Will they
benefit, or at least not further be harmed?” Compared to other leadership styles where the
ultimate
10. regards honesty and integrity as important personal values.
11. sets an example of dedication and self-sacrifice for the organization.
12. opposes the use of unethical practices to increase performance.
13. is fair and objective when evaluating member performance and providing rewards.
14. puts the needs of others above his/her own self-interest.
15. holds members accountable for using ethical practices in their work.
This list is derived from Yukl’s questionnaire which assesses whether a leader is ethical.
The latest meta-analysis (Ng and Feldman, 2015) shows that ethical leadership has a positive effect
on job attitudes and job performance, and this effect is mainly driven by the follower’s trust in the
leader. Employees trust ethical leaders more and display more positive job attitudes and greater job
performance because of that heightened trust.
6.7 Substitutes for leadership
In certain situations, the role of leader and the importance of leadership may be reduced by various
factors.

6.8 Critical approach to leadership
A critical approach to leadership questions the popular “heroic” conception of leadership and argues
that leaders have much less power and influence over the course of events and their outcomes than
the public credits them with (Meindl, 1995; Meindl et al., 1985; Schyns et al., 2007)
This critical approach suggests that the predominant view of leadership, popular in theory, the media,
and public imagination), is anti-deterministic. The antideterministic view discounts the role of social,
economic and political forces and exaggerates the ability of leaders to control the environment in
which they operate. It puts leaders on a pedestal and promotes “the cult of leadership” and the belief
that it is great men and women who make history (in organizations, as well as in the public life
generally). In organizational context, the anti-deterministic view sees the principal significance of
leaders in their substantive actions and activities, which either effectively isolate their firms from the
vagaries of environment or use environment to the advantage of their firms, or both, in direct
proportion to their abilities and skills.
The critical approach posits, instead, a deterministic view of leadership. It opines that the
environmental forces have a much stronger effect on organizations than leaders could possibly
exercise. Therefore, the deterministic view sees the leadership’s role as largely symbolic – aimed at
preserving among important constituencies (such as the followers) the illusion of a more “tame” and
controlled (i.e. anti-deterministic) world.
The critical approach makes the following compelling argument: Leaders have little influence on
organizational outcomes, because the environmental factors prevail. People, however, yearn for a
simpler and more comfortable explanation of events; they do not like to feel as powerless pawns,
whose fate is decided by anonymous external forces. Leaders provide an easy target, to which success
or failure can be attributed. Leaders don’t make history – but people prefer to think that they do. This
perception of leader as an omnipotent being, however, has a significant influence in itself, as a “self-
fulfilling prophecy”. Believing that the leader is powerful makes people behave as if the leader, indeed,
had considerable powers. If leadership is a “myth”, then we may do well to remember that myths
have a capacity to fire imagination, instil confidence and propel action.

6.9 Leadership and followership
A leader can only lead effectively if their ‘followers’ are prepared to follow them. If we take the view
that leadership is a process that does not reside with the leader alone, then it stands to reason that
followers can influence the quality of leadership within the organization. In other words, followers
can be co-creators of either good or bad leadership.
Therefore in the same way that we can speak of effective leadership, we also can recognise effective
followership. Effective followers are as important an organization resource as leaders. In addition to
providing necessary skills and expertise, followers are also able to suggest alternative ideas and
challenge the status quo. Although much emphasis has been placed on the role of leaders the extent
to which a leader can lead effectively is directly related to the extent to which followers are prepared
to follow.
However followership is not particularly well researched. And probably even less considered within
organizations where little thought or support is given to being an effective follower. Perhaps this is
not surprising. Leaders are admired within society and most people aspire to lead. But the reality is
that most people spend most of their time in followership roles. We are team members at least as
often, or more, than we are team leaders. And even those who lead are not exclusively in this role.
They are also followers or team members.
6.9.1 Followership styles
What then is ‘effective followership’? Effective followership is, in a large part, dependent on a
mutually positive relationship between the follower and the leader. Respect for each other’s strengths
and weaknesses allows the relationship to develop a degree of flexibility which recognises the
expertise and skills needed at any one time. Effective followers are a resource for the leader; in
addition to providing skills, abilities, expertise when the leader needs it, they are often able to suggest
new perspectives and challenge the status quo.
As with leadership, followership styles can vary. For example, there are differences in the degree to
which the follower conforms to or challenges the leader’s behaviors and decisions. A particularly
influential writer on followership is Kelley (1992). Kelley differentiates followers on the basis of:
• the extent to which the follower acts passively or actively, and

• the extent to which the follower is able (or willing) to think critically.
The relationship between these two dimensions determines the style of followership behavior that is
demonstrated. These different styles are summarised in the two-dimensional model of follower
behavior presented in the figure below.

Model of follower behavior (Kelley, 1992)
We describe these styles in more detail below:
Passive Behavior/Uncritical Thinker: ‘Sheep’
The passive follower is not capable of critical or evaluative thought or active behaviors.
Their focus is totally on the task in hand and sees no broader perspectives. They accept this task
unquestioningly and invariably require supervision to ensure the successful completion of the task.
Passive followers allow other people to do the thinking.
Active Behavior/Uncritical Thinker: ‘Yes People’
This individual behaves actively, taking part in a wide range of activities above and beyond their
personal task focus; however, they do this unquestioningly.
These people are willing, able and capable people, however they fail to challenge the leader’s vision,
the corporate direction or even the tasks they have been set. They may even perform unethical duties
simply because they have been told to do so. Such conformist behaviors are often found in rigid
hierarchical or ‘bureaucratic’ organizations.
Passive/Critical Thinker: The ‘Alienated Follower’

The alienated follower is an individual who is able to critically evaluate the vision, the plans and the
intentions of the leader and to reach logical conclusions as a result. However they often feel unable
to do anything with this information.
Their passive behaviors mean they have difficulty sharing the information with others, and so they
become increasingly frustrated and internalise their own views and opinions. They retain their ability
to critique, but lose their ability to use this constructively.
Active Behavior/Critical Thinker: ‘Effective Follower’
The effective follower is able to analyse and evaluate the options facing him or her, the group, the
organization and/or the leader.
Their conclusions are then articulated via active behavior, allowing others to share that information.
They are assertive people who do not try to avoid risk, rather to deal with it in the most effective way
possible. They strive to serve the general good rather than being associated with any specific leader
or cause.
Middle Orientation: ‘Survivor’
The pragmatic survivor is situated in middle of the matrix.
This person is a situational follower; they rate highly on all the measures allowing them to move
through the range of profiles as circumstance and prudence dictates. Pragmatic survivors adopt the
style that is most likely to benefit them. In the short term this may mean unthinking compliance to
task, although in the long term, a more critical role may be adopted according to need.
6.9.2 Distributed leadership
‘Distributed leadership’ is a related idea (Spillane, 2006). The theory of distributed leadership makes
a more radical argument that leadership and followership is a dynamic state where roles and
responsibilities should shift according to the needs of the situation (Currie et al., 2009; Thorpe et al.,
2011). The CIPD, in its Global Leadership Forecast, suggests that while leadership is a key driver of
sustainable organizational performance, it is essential that leadership capacity is distributed
throughout the organization (Chartered Institute of Personnel and Development, 2011).
For an organization to be effective, it may need to distribute the leadership process to all levels and
parts of the organization – requiring and empowering leadership wherever it is needed. Under models
of distributed leadership, leaders and followers therefore have fluid rather than fixed positions.

This notion of leadership is particularly relevant to flexible, non-hierarchical organizations which rely
on team based management. Such ‘flatter’ organizations require new leadership practices that rely
less on the individual efficacy of individual leaders and more on the collective efficiency of formal and
informal networks.
Distributed leadership has been found to be particularly relevant in organizations whether a large
number of professionals are employed. Models have often been found in the public sector - in schools
and hospitals for example.
Distributed leadership is therefore where:
• leadership functions can be spread across multiple individuals and teams, and possibly even
to those outside the firm;
• leadership can be taken on by those not in formal leadership roles (e.g., in one organization
almost 60% of employees self-identified as leaders);
• change can be driven from the bottom up (e.g., at Southwest Airlines, for instance, front-line
employees took the lead in devising new ways to reduce turnaround times and developing
electronic ticketing).
Distributed leadership holds that leadership and followership can be in a dynamic state, flexibly
shifting between people within organizations as situations and needs change. One moment you are
leading, the next moment you are following, and so on.
However there are some criticisms. Thus, Ancona and Backman (2017) note that the distributed
leadership literature focuses primarily on the liberating aspects of this new form of leadership,
spreading decision making power, influence, and voice to increase innovation and adaptability. In
reality, however, these freedoms are limited. Distributed leadership practices tend to be restricted by
a “protective functions of alignment, control and risk mitigation”. Even where distributed leadership
is practised, often a strong centralised leader designs the distributed model and sustains it in its early
years. This leader – or a top leadership team – still steps in from time to time to make key decisions.
This tendency also presents a threat to the model as in times of crisis or challenge as there is the
tendency for traditional leadership practices to reassert themselves.
Critics have also pointed out that distributed leadership often serves as a powerful rhetorical device.
In other words, it might be used by those in positions of power to disguise power differences by
offering the illusion of consultation and participation and hiding the mechanisms by which decisions
are reached and resources distributed. It should also be noted that it is not always valued by those in
subordinate positions who may interpret a lack of direction and claim that leaders are ‘paid to lead’.
6.10 Summing up

Modern managers are extolled to lead – not just manage, and ought to be prepared to develop the
qualities and to demonstrate the behaviors that followers expect from the leaders. The theories of
leadership provide some advice in that direction: They suggest that leadership is not necessarily an
inborn ability, although having certain qualities – such as sensitivity to the situation and ability to
adapt one’s style to meet its demands - does help. Leading can be learned, but it requires vigilance:
As contingency theories tell us, a leader must be attentive to the characteristics and needs of the
followers and to the specifics of the task and the context. Taking all these into account when deciding
how best to lead is a challenge. Choosing how to implement the theories advice is also a challenge.
For example, transformational leadership requires leaders to be “inspirational” – but what to inspire
the followers with is down to the individual leader’s choice and wisdom. Yet another challenge lies in
the requirement that a leader must be flexible and be able to adjust the way she or he leads. At the
same time, there may be a danger in too much flexibility – If the leader changes their style like a
chameleon, then the followers may perceive the leader as too volatile and not trustworthy.
6.11 TAKEAWAYS
1. Leadership is the ability to motivate, influence, and enable individuals to contribute to the
objectives of organizations of which they are the member.
2. Managers are formally appointed and their power is vested in their position in the organizational
hierarchy of authority. Leaders, in contrast, emerge through relationships with others and their
power comes from the followers, who relinquish part of their independence and give the leader
the power to guide them. Managers might or might not be leaders.
3. Three classical approaches to leadership are the traits approach, the styles approach, and the
contingency approach. The traits approach to leadership suggests that there are innate individual
characteristics that account for leadership. The behavior or style approach suggests that
leadership comes from particular behaviors or behavioral style – and that there are winning and
losing styles. The contingency or situational approach suggests that one style of leadership or one
type of leadership behavior cannot be suitable to all kinds of situations. Demands of a situation
make certain styles or behaviors effective – and other styles and behaviors ineffective. The
situational approach to leadership tries to identify what elements of a situation are particularly
important for determining what behavior a leader should adopt.
4. Despite considerable amount of criticism that has been directed at the classical approaches to
leadership over the years, these approaches remain valid. Current research evidence shows that
there are, indeed, commonalities in the traits of individuals who are perceived as “leadership
material” and of leaders who are perceived as effective by their followers. There are also certain
behaviors – task-oriented and relationship-oriented – that all leaders should perform. Finally,
certain styles of leadership do work better in certain situations, depending on the characteristics
of situation and the followers’ attributes.

5. Transactional leadership seeks to achieve the desired objectives by rewarding subordinates for
behaviors consistent with realising these objectives. Transformational leadership seeks to achieve
the objectives through idealised influence, inspirational motivation, intellectual stimulation, and
individualised consideration. Transactional leadership is deemed more appropriate for the
“business as usual” situations; transformational leadership is advisable for the times of radical
change and upheaval.
6. Leaders that are perceived as charismatic tend to champion a vision that is radically different from
the status quo, employ unconventional methods and strategies to realise the vision, take personal
risk and make sacrifices, project confidence, and use persuasion and rhetoric.
7. Concern with the ethical dimensions of leadership have motivated the creation of normative
models of leadership such as authentic leadership, ethical leadership, and servant leadership.
8. A leader can only lead effectively if their followers are prepared to follow them. Followers are co-
creators of either good or bad leadership. Effective followers are as important as effective leaders.
9. A followership typology identifies four followership styles: sheep, alienated followers, yes people,
and effective followers. Leaders need to take the profile of their followers into account to develop
effective influence.
10. The theory of distributed leadership suggests that roles and responsibilities of leaders and
followers should shift according to the needs of the situation. Organizations may need to
distribute the leadership process to all levels and parts of the organization – requiring and
empowering leadership wherever it is needed.
Note: Please remember also to review Takeaways provided in the textbook Chapters 13 and 14.

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Corporate Finance

Bangor Business School – Executive Education

Chartered Banker MBA

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Olga Suhomlinova is currently Associate Professor of Management at the University of Leicester

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1.1 Learning objectives

After completing this section you will be able to

1.2 Linked reading

Organizational Behavior, Chapter 6 Motivation

1.3 Defining motivation

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1. the direction of action, i.e. what a person chooses to do;

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1.4 Theories of motivation

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Your textbook, in Chapter 6 Motivation, presents another four theories:

(1) expectancy theory,

(2) goal-setting theory,

(3) equity theory, and

(4) psychological empowerment.

1.4.1 Maslow’s hierarchy of needs

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Maslow’s hierarchy of needs

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Self-esteem in organizational context is generally based on the individual’s successful performance

1.4.2 Self-determination theory

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In a simplified way, this continuum of motives can be presented as follows:

Motivation continuum (simplified version)

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The good motives are play, potential and purpose.

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• competency to master a skill and achieve a successful outcome;

In recruitment and selection, organizations should explain to the candidates:

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Multidimensional Work Motivation Scale

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1.5 Do employers know what employees need and want?

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Top global drivers of attraction (2016)

Top global drivers of retention

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1.6 Intrinsic and extrinsic motivation

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The meta-analysis addressed three questions:

1. Does intrinsic motivation predict performance?

2. If it does, what is the role of extrinsic incentives?

3. Which matters more to performance: intrinsic motivation or extrinsic incentives?

1.6.1 Does intrinsic motivation predict performance?

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1.6.2 How do incentives affect intrinsic motivation?

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• for directly salient incentives is 0.30

1.6.3 What matters more: incentives or intrinsic motivation?