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1. Motivation Theory And Practice
2. Theorists and Theories
3. Theory into Practice
4. Financial Motivation

5. Human Relations

1. Motivation Theory And Practice

Employee motivation in the workplace

The job of a manager in the workplace is to get things done through employees.  To do this the manager should be able to motivate employees.  But that's easy said than done! Motivation practice and theory are difficult subjects, touching on several disciplines.

In spite of enormous research, basic as well as applied, the subject of motivation is not clearly understood and more often than not poorly practiced.  To understand motivation one must understand human nature itself.  And there lies the problem!

Human nature can be very simple, yet very complex too.  An understanding and appreciation of this is a prerequisite to effective employee motivation in the workplace and therefore effective management and leadership.

Our articles on motivation theory and practice concentrate on various theories regarding human nature in general and motivation in particular.  Included are articles on the practical aspects of motivation in the workplace and the research that has been undertaken in this field, notably by Douglas McGregor (theory y), Frederick Herzberg (two factor motivation hygiene theory,) Abraham Maslow (theory z, hierarchy of needs), Elton Mayo (Hawthorne Experiments) Chris Argyris (achievement motivation) Rensis Likert and David McClelland.

Motivation is the crux

There is an old saying you can take a horse to the water but you cannot force it to drink; it will drink only if it's thirsty - so with people.  They will do what they want to do or otherwise motivated to do.  Whether it is to excel on the workshop floor or in the 'ivory tower' they must be motivated or driven to it, either by themselves or through external stimulus.

Are they born with the self-motivation or drive? Yes and no.  If no, they can be motivated, for motivation is a skill which can and must be learnt.  This is essential for any business to survive and succeed.

Performance is considered to be a function of ability and motivation, thus:

Job performance =f (ability) (motivation)

Ability in turn depends on education, experience and training and its improvement is a slow and long process.  On the other hand motivation can be improved quickly.  There are many options and an uninitiated manager may not even know where to start.  As a guideline, there are broadly seven strategies for motivation.

These are the basic strategies, though the mix in the final 'recipe' will vary from workplace situation to situation.  Essentially, there is a gap between an individual's actual state and some desired state and the manager tries to reduce this gap.

Motivation is, in effect, a means to reduce and manipulate this gap.  It is inducing others in a specific way towards goals specifically stated by the motivator.  Naturally, these goals as also the motivation system must conform to the corporate policy of the organization.  The motivational system must be tailored to the situation and to the organization.

In one of the most elaborate studies on employee motivation, involving 31,000 men and 13,000 women, the Minneapolis Gas Company sought to determine what their potential employees desire most from a job.  This study was carried out during a 20 year period from 1945 to 1965 and was quite revealing.  The ratings for the various factors differed only slightly between men and women, but both groups considered security as the highest rated factor.  The next three factors were;

Surprisingly, factors such as pay, benefits and working conditions were given a low rating by both groups.  So after all, and contrary to common belief, money is not the prime motivator.  (Though this should not be regarded as a signal to reward employees poorly or unfairly.)

2. The theorists and their theories

Although the process of management is as old as history, the scientific management as we know it today is basically a twentieth century phenomenon.  Also, as in some other fields, practice has been far ahead of theory.  This is still true in the field of management, contrary to the situation in some of the pure sciences.  A giant of a man, like Albert Einstein, formulates a theory, which is later proved by decades of intensive research and experimentation.  Not so in the field of management.

In fact this field has been so devoid of real fundamental work so far, that Herbert A. Simon is the first management theoretician to win the Nobel Prize for Economics in 1978.  His contribution itself gives a clue to the difficulty, bordering on impossibility, of real fundamental work in this field concerned with people.  In order to arrive at a correct decision, the manager must have all the information necessary relevant to the various factors and all the time in the world to analyze the same.

This is seldom, if ever, the case.  Both the information available and the time at the managers disposal are limited, but he or she must make a decision.  And the decision is, therefore, not the optimum one but a 'satisficing' one - in effect, a satisfactory compromise under the real conditions prevailing in the management 'arena'.

2.1 Traditional theory 'X'

This can best be ascribed to Sigmund Freud who was no lover of people, and was far from being optimistic.  Theory X assumes that people are lazy; they hate work to the extent that they avoid it; they have no ambition, take no initiative and avoid taking any responsibility; all they want is security, and to get them to do any work, they must be rewarded, coerced, intimidated and punished.  This is the so-called 'stick and carrot' philosophy of management.  If this theory were valid, managers will have to constantly police their staff, whom they cannot trust and who will refuse to cooperate.  In such an oppressive and frustrating atmosphere, both for the manager and the managed, there is no possibility of any achievement or any creative work.  But fortunately, as we know, this is not the case.

2.2 Theory 'Y' - Douglas McGregor

This is in sharp contrast to theory 'X'.  McGregor believed that people want to learn and that work is their natural activity to the extent that they develop self-discipline and self-development.  They see their reward not so much in cash payments as in the freedom to do difficult and challenging work by themselves.  The managers job is to 'dovetail' the human wish for self-development into the organizations need for maximum productive efficiency.  The basic objectives of both are therefore met and with imagination and sincerity, the enormous potential can be tapped.

Does it sound too good to be true? It could be construed, by some, that Theory 'Y' management is soft and slack.  This is not true and the proof is in the 'pudding', for it has already proved its worth in the USA and elsewhere.  For best results, the persons must be carefully selected to form a homogeneous group.  A good leader of such a group may conveniently 'absent' from group meetings so they can discuss the matters freely and help select and 'groom' a new leader.  The leader does no longer hanker after power, lets people develop freely, and may even (it is hoped) enjoy watching the development and actualization of people, as if, by themselves.  Everyone, and most of all the organization, gains as a result.

2.3 Theory 'Z' - Abraham Maslow

This is a refreshing change from the theory X of Freud, by a fellow psychologist, Abraham Maslow.  Maslow totally rejects the dark and dingy Freudian basement and takes us out into the fresh, open, sunny and cheerful atmosphere.  He is the main founder of the humanistic school or the third force which holds that all the good qualities are inherent in people, at least, at birth, although later they are gradually lost.

Maslow's central theme revolves around the meaning and significance of human work and seems to epitomize Voltaire's observation in Candide, 'work banishes the three great evils -boredom, vice and poverty'.  The great sage Yajnavalkya explains in the Brihadaranyaka Upanishad that by good works a man becomes holy, by evil works evil.  A mans personality is the sum total of his works and that only his works survive a man at death.  This is perhaps the essence of Maslow's hierarchy of needs theory, as it is more commonly know.

Maslow's major works include the standard textbook (in collaboration with Mittlemann), Principles of Abnormal Psychology (1941), a seminal paper, 'A Theory of Human Motivation' (1943) and the book, Eupsychian Management (pronounced yew-sigh-keyan) published in 1965.  Maslow's theory of human motivation is, in fact, the basis of McGregor's theory 'Y' briefly described above.  The basic human needs, according to Maslow, are:

(a) physiological needs (Lowest)
(b) safety needs;
(c) love needs;
(d) esteem needs; and
(e) self-actualization needs (Highest)

Mans behavior is seen as dominated by his unsatisfied needs and he is a 'perpetually wanting animal', for when one need is satisfied he aspires for the next higher one.  This is, therefore, seen as an ongoing activity, in which the man is totally absorbed in order to attain perfection through self-development.

The highest state of self-actualization is characterized by integrity, responsibility, magnanimity, simplicity and naturalness.  Self-actualizers focus on problems external to themselves.  His prescription for human salvation is simple, but not easy: 'Hard work and total commitment to doing well the job that fate or personal destiny calls you to do, or any important job that "calls for" doing'.

Maslow has had his share of critics, but he has been able to achieve a refreshing synthesis of divergent and influential philosophies of:

(a) Marx - economic and physical needs;
(b) Freud - physical and love needs;
(c) Adler - esteem needs;
(d) Coldstein - self-actualization.

2.4 Frederick Herzberg - Motivation hygiene theory

This is based on analysis of the interviews of 200 engineers and accountants in the Pittsburgh area in the USA.  According to this theory, people work first and foremost in their own self-enlightened interest, for they are truly happy and mentally healthy through work accomplishment.  People's needs are of two types:
Animal needs (hygiene factors)
  • Company policy
  • Supervision
  • Interpersonal relations
  • Working conditions
  • Salary
Human needs (motivators)
  • Achievement
  • Recognition
  • Work
  • Responsibility
  • Advancement

Unsatisfactory hygiene factors can act as de-motivators, but if satisfactory, their motivational effect is limited.  The psychology of motivation is quite complex and Herzberg has exploded several myths about motivators such as:

As typical examples, saying 'please' to shop-floor workers does not motivate them to work hard, and telling them about the performance of the company may even antagonize them more.  Herzberg regards these also as hygiene factors, which, if satisfactory, satisfy animal needs but not human needs.

2.5 Chris Argyris

According to Argyris, organization needs to be redesigned for a fuller utilization of the most precious resource, the workers, in particular their psychological energy.  The pyramidal structure will be relegated to the background, and decisions will be taken by small groups rather than by a single boss.  Satisfaction in work will be more valued than material rewards.  Work should be restructured in order to enable individuals to develop to the fullest extent.  At the same time work will become more meaningful and challenging through self-motivation.

2.6 Rensis Likert

Likert identified four different styles of management:

The participative system was found to be the most effective in that it satisfies the whole range of human needs.  Major decisions are taken by groups themselves and this results in achieving high targets and excellent productivity.  There is complete trust within the group and the sense of participation leads to a high degree of motivation.

2.7 Fred Luthans

Luthans advocates the so-called 'contingency approach' on the basis that certain practices work better than others for certain people and certain jobs.  As an example, rigid, clearly defined jobs, authoritative leadership and tight controls lead in some cases to high productivity and satisfaction among workers.  In some other cases just the opposite seems to work.  It is necessary, therefore, to adapt the leadership style to the particular group of workers and the specific job in hand.

2.8 Victor Vroom

Vroom's 'expectancy theory' is an extension of the 'contingency approach'.  The leadership style should be 'tailored' to the particular situation and to the particular group.  In some cases it appears best for the boss to decide and in others the group arrives at a consensus.  An individual should also be rewarded with what he or she perceives as important rather than what the manager perceives.  For example, one individual may value a salary increase, whereas another may, instead, value promotion.  This theory contributes an insight into the study of motivation by explaining how individual goals influence individual performance.

We have discussed above only a selection of the motivation theories and thoughts of the various proponents of the human behavior school of management.  Not included here are, among others, the thoughts of:

What does it all add up to? Back to 'square one'? Yes, indeed, the overall picture is certainly confusing.  This is not surprising, for the human nature and human mind defy a clear-cut model, mathematical or otherwise.

In some of the theories and thoughts presented, however, one can see some 'glimpses' of the person and how, perhaps, he or she could be motivated.  This is rewarding in itself.  But, as noted earlier, practice has been ahead of theory in this field, so let us now move to the practical side of management of human behavior in the workplace.

3. Employee motivation in practice

Management literature is replete with actual case histories of what does and what does not motivate people.  Presented here is a tentative initial broad selection of the various practices that have been tried in order to draw lessons for the future.

'Stick' or 'carrot'?

The traditional Victorian style of strict discipline and punishment has not only failed to deliver the goods, but it has also left a mood of discontent amongst the working class.  Punishment appears to have produced negative rather than positive results and has increased the hostility between 'them' (the management) and 'us' (the workers).  In contrast to this, the 'carrot' approach, involving approval, praise and recognition of effort has markedly improved the work atmosphere, produced the 'goods' and given the workers enormous satisfaction.

Manager's 'toolkit'

The manager's main task is to motivate his or her team, both individually and collectively so that they can deliver the 'goods' and also derive satisfaction from it.

This may appear somewhat contradictory, but it seems to work.  The main tools in the project manager's kitbag for motivating the team are:

These are arranged in order of importance and it is interesting to note that cash is way down the ladder of motivators.  Let's look at a couple of examples taken from real life situations.

The Swedish shipbuilding company, Kockums, turned a 15 million dollar loss into a 100 million dollar profit in the course of ten years due entirely to a changed perception of the workforce brought about by better motivation.  At Western Electric there was a dramatic improvement in output after the supervisors and managers started taking greater interest in their employees.

Don't coerce - persuade!

Persuasion is far more powerful than coercion, just as the pen is mightier than the sword.  Managers have a much better chance of success if they use persuasion rather than coercion.  The former builds morale, initiative and motivation, whilst the latter quite effectively kills such qualities.  The three basic components in persuasion are:

Once convinced, the person is so motivated as to deliver the 'goods'.  The manager will have achieved the goal quietly, gently and with the minimum of effort.  It is, in effect, an effortless achievement.

There has been a considerable amount of research into persuasion / motivation in the field of advertising and marketing.  The research is entirely of the applied type, which can and has been used to great practical advantage.  Some of the findings in this field were first published in the fifties in a book with the title, The Hidden Persuaders, which became a bestseller.

More contemporary 'persuaders' used by advertising and marketing people include:

Can these findings be used in actual work conditions? AT&T (The American Telephone and Telegraph Co.,) recognizing the importance of hidden needs, at one time succeeded in promoting long distance calls by use of the simple phrase: 'Reach out, reach out and touch someone'.  Managers will need to adapt this persuasion / motivation technique to their own situation.

Job satisfaction - is there a trend?

This is the title of a study carried out by the US Department of Labor among 1500 workers, who were asked to rate the job factors, from a list of 23, which they considered important starting from the most important factor.  Their findings (Sanzotta (1977)) are:
White-collar workers Blue-collar workers
(a) interesting work (a) good pay
(b) opportunity to develop special abilities (b) enough help and equipment
(c) enough information (c) job security
(d) enough authority (d) enough information
(e) enough help and equipment; (e) interesting work
(f) friendly and helpful coworkers (f) friendly and helpful coworkers
(g) opportunity to see results of work (g) responsibilities clearly defined
(h) competent supervision (h) opportunity to see results of work
(i) responsibilities clearly defined (i) enough authority
(j) good pay (j) competent supervision

It is interesting that out of the 23 job factors listed for the survey, yet with the exception of two items (white-collar workers' choice (b) and blue-collar workers' choice (c)) groups selected the same top ten factors, although with different rankings.  It is significant that good pay was considered as the most important factor by the blue-collar workers, but it ranked as the least important for white-collar workers.

Motivating your salesforce

It is well known that individual behavior is intensely personal and unique, yet companies seek to use the same policies to motivate everyone.  This is mainly for convenience and ease compared to catering for individual oddities (Lindstone (1978)).  'Tailoring' the policy to the needs of each individual is difficult but is far more effective and can pay handsome dividends.  Fairness, decisiveness, giving praise and constructive criticism can be more effective than money in the matter of motivation.  Leadership is considered synonymous (Tack (1979)) with motivation, and the best form of leadership is designated as SAL, situation adaptable leadership.  In this style of leadership, one is never surprised or shocked, leadership must begin with the chief executive and it is more a matter of adaptation than of imparting knowledge.  Ultimately, it is the leadership quality which leads to the success of a company through building and motivating its people.

'The one-minute manager'

A contemporary bestseller (Blanchard & Johnson (1983)) aimed at managers who seek to make star performers of their subordinates.  To start with, the manager sets a goal, e.g.  one page read in one minute, and it is seen to be achieved by 'one minute' of praising or reprimand as the case may be.  But to be effective, these must be given (a) promptly, (b) in specific terms, and the behavior, rather than the person, should be praised or reprimanded.

The concept is basic and it makes sense, although the book seeks to 'dramatize' it.  'One minute' praising is seen to be the motivating force.  Everyone is considered a winner, though some people are disguised as losers, and the manager is extolled not to be fooled by such appearances.

'Lessons from America's Best-run Companies'

Another bestseller, In Search of Excellence (Peters & Waterman (1982)).  Several criteria, including analysis of annual reports and in-depth interviews, were used to pick 14 'model excellent companies' out of an initial sample of 62 companies.  As expected, most of the action in high-performing companies revolved around its people, their success being ascribed to:
  1. productivity through people;
  2. extraordinary performance from ordinary employees;
  3. treating people decently.

Personnel function and in particular leadership were considered the most critical components.  If the leaders in an organization can create and sustain an environment in which all employees are motivated, the overall performance is bound to be good.  The three essentials for creating such an environment are:

  1. fairness;
  2. job security; and
  3. involvement.

Of all the resources available, the human resource is clearly the most significant, but also the most difficult to manage.  Excellence can only be achieved through excellent performance of every person, rather than by the high-pitched performance of a few individuals.  And motivation is, undoubtedly, the crux.


There is no simple answer to the question of how to motivate people.  Can money motivate? Yes, but money alone is not enough, though it does help.  We have discussed some of the pertinent theories bearing on human motivation and this is balanced by some of the practical factors which can lead to excellence.  Human resource remains the focal point and leadership the critical component, and motivation has to be 'tailored' to each individual.  The next section deals with an important mode of motivation, namely financial.

4. Financial Motivation

Financial Motivation of Employees | Motivating executives | Performance Related Pay | The Glacier Project | Payment by Results |

4.1 Financial Motivation of Employees - Introduction

The previous section dealt with motivation theory and practice.  There is no doubt that motivation is the crux for good performance, but there is no clear cut answer to the question of how to motivate.  The previous pages gave a glimpse of the answer through various theories and practices.  Money is a factor in motivating people and this section concentrates on this.  Reward systems are discussed in general and later in specifics in terms of payment by results.  Various schemes for financial motivation are also described.
Money is important!
This is, perhaps, saying the obvious.  But it still needs to be said, for a perusal of the previous section may give the impression to the contrary, at least judging from Maslow's concept.  Refreshing as it is, if the theory was completely valid then, at least in affluent countries, economic incentives should have lost all their force.  This, we know is not correct.

According to Peter Drucker (1974) 'there is not one shred of evidence for the alleged turning away from material rewards...  Antimaterialism is a myth, no matter how much it is extolled.' In fact, they are taken so much for granted that their denial may act as a de-motivator.  'Economic incentives are becoming rights rather than rewards.

There is no doubt that we live in a money-motivated world.  Any amount of human relations cannot compensate for a lack of monetary reward.  If the reward is right, good human relations will give that extra zest to a team, motivating them to try even harder.  Insufficient monetary reward cannot be compensated by good human relations.

Even dedicated footballers do not think of playing for England, they merely pay 'lip service' to it.  Cricketers and rugby players no longer play for their own country but opt for the 'highest bidder'.  Professional tennis players have refused to play at Wimbledon, the 'Mecca' of lawn tennis, because the rewards were not attractive.

It is no different in the industrial world.  Strikes for better salary and rewards do still occur.  All this despite the claim of psychologists that security is the prime need of a person, as indicated in the previous section.  Has the sense of values changed with time? But we are not concerned here with the philosophical angle, but with hard facts of life in a commercial world.

Self-motivation can go only so far and it needs to be constantly reinforced by rewards.  In particular, merit must be measured and rewarded regularly, if it is to be encouraged and sustained.  The 'gold banana' in Foxboro has its origin in just an ordinary banana which one of the pioneers could muster on the spur of the moment when he discovered extraordinary performance by one of the employees (see next section.)

4.2 Motivating Executives

We discuss this subject separately, since there is an indication from various surveys (see previous chapter) that the blue-collar and white-collar workers do not attach the same importance to financial incentives.  This is probably more due to differing value system of the two, rather than the importance each attaches to the money per se.

Properly used, money can be a motivating factor, but little money may have no effect (Crystal (1970)).  To achieve motivation of executives, therefore:

(a) reward should be meaningful; and
(b) reward should vary with performance.

The concept is simple, but its implementation is not easy.  However, the job is well worth trying.  To be effective, the reward should be 'tailored' to each individual, but only as part of the total compensation concept.  It is essential (Moore (1968)) to develop an overall program within which each compensation package must be individualized.  There is also need for constant search of new ideas in this respect.  The essentials of an effective company-wide executive compensation scheme are: sound salary-base structure, several fundamental compensation devices and considerable flexibility in its application.

The five basic elements (Ellig (1982)) of executive compensation are:

Any plan for executives should take into account the following factors:

  1. Executives perceive others as working less and paid more.
  2. Appearance of a reward as important a factor as the reward itself.
  3. Flexibility, but not at the expense of discretion.
  4. Performance rating should support the pay action.
  5. Correcting one inequity may lead to yet another.
  6. A decision once announced is difficult to modify.
  7. An arithmetic increase in the number of people involved results in a geometric increase in the time required to reach agreement.

Motivating for high performance can cost a lot of money.  Not everyone can be motivated by money alone, however much.  Incentive pay plans should be designed (Ivancevich (1983)) not only to reward good performance but also to minimize the negative side-effects, such as conflict and grievance.  At times it is difficult to develop a valid, equitable and acceptable means of performance.  Many pay plans fail because of either not being suited to the particular situation or because of poor implementation.  It is essential to consider the following aspects before designing a pay plan to motivate performance:

(a) preference of individual employees;
(b) size of pay rewards for high performance;
(c) method of motivating individual job performance;
(d) subjective

We have pointed out earlier that for effective and sustained motivation, the reward must be prompt and immediate.  The example of Foxboro has been quoted.  In its early days, the company's very survival depended on technical innovation.  Late one evening (Peters & Waterman (1982)) a scientist walked into the president's office with a working prototype.  The president was dumbfounded by the elegance of the solution and sought to reward him immediately and on the spot.  Rummaging through the drawers of his desk, all he could find was a banana and this had to suffice.  This was the forerunner of the 'gold banana' concept, a very apt and fitting reward.  Likewise, Thomas Watson Snr.  had made a practice of writing out a check on the spot for any unusual achievement that he observed.

However, we must introduce a note of caution.  There is a connection (White (1973)) between executive pay and company size, in terms of turnover or number of employees, but no connection between executive pay and improvement in profitability - the bigger the company, the higher the pay, but efficiency is not necessarily higher.  The higher salary is probably because of a larger number of levels in big companies.  Of course, with the large number of variables involved, it is difficult to correlate any two isolated factors, such as executive pay and overall company efficiency.

There should be a direct correlation, but perhaps the yardsticks available for this purpose are inadequate to establish it.  Let us, however, reiterate that individual executives have different senses of values, of which money is one, and an important one at that.  No reward other than money is so flexible, so measurable or so controllable.  But in using financial motivation, the companies must be clear on what they wish to achieve, then define what managers are expected to contribute towards the objectives and finally ensure that financial reward is linked to managerial performance.

It is no different in the industrial world.  Strikes for better salary and rewards do still occur.  All this despite the claim of psychologists that security is the prime need of a person, as indicated in the previous section.  Has the sense of values changed with time? But we are not concerned here with the philosophical angle, but with hard facts of life in a commercial world.

Self-motivation can go only so far and it needs to be constantly reinforced by rewards.  In particular, merit must be measured and rewarded regularly, if it is to be encouraged and sustained.  The 'gold banana' in Foxboro has its origin in just an ordinary banana which one of the pioneers could muster on the spur of the moment when he discovered extraordinary performance by one of the employees (see next section.)

4.3 Performance Related Pay - Reward Systems

Reward can act as the 'catalyst' for improved performance and better productivity.  But reward, as such, is not enough and in any case it is not a substitute for good management.  Rather, it is a part of management.  Certain basic criteria are essential for rewards to be effective.  These include:

If the reward plan is seen to be unfair and unrealistic, for example promotion on the basis of seniority or favoritism, it may have a definitely negative effect as a motivator.  For rewards to be effective, they have to be generous and significant as noted above, hence they must be structured to attain a proper balance of motivating people to purpose and at optimum effort.

Rewards are generally reckoned to improve productivity by somewhere of the order of 20 to 30 per cent.  This is nearly twice as much as that attained by goal-setting or job-redesign.  But each incentive or reward system is likely to have value under certain conditions only.  Hence to be effective, the rewards must be 'tailored' and changed to suit the specific conditions.  There is no magic formula for all situations and at all times.

Productivity is usually but erroneously associated only with the workshop floor.  But total productivity which ultimately determines the profitability of the entire organization is the sum total of the productivity at various levels right up to the CEO.  For if the workers are not given the right materials at the right place and at the right time, their productivity will suffer due to no fault of theirs.  The manager, therefore, plays a vital role in the productivity of the workers and team.

One can even go as far to say that productivity is the only reason for the existence of the manager.  Individually the manager may be considered nonproductive, in that he or she does not contribute directly to the production, but is responsible for integrating the work of his or her team into a total productivity effort, Thus, a manager can increase productivity indirectly by aiding to produce more, and here too, financial motivation plays a major role.

The financial rewards are basically of three types:

Profit sharing could be on a macro basis or on a micro basis.  The former relates to the entire company as a whole and the latter to a particular section or group dealing with a particular activity and/or product.  On a macro level, it would be difficult to identify and reward outstanding performance.  This is possible on a micro level by treating the particular activity as a cost and profit center by itself.  This is easier said than done, since overheads and other common services have to be charged and this cannot be done completely objectively.  The cost allocation in such cases is somewhat arbitrary and the profit will therefore not be a true reflection of the performance of that particular group or activity.

In case of job evaluation, the various component factors have to be isolated and evaluated for purposes of inter-job comparison.  Each factor is assigned a rating on the basis of a scale agreed beforehand by the union and the management joint committee.  The total rating for each job then forms the basis of wage structure.  However, there must be a base level, representing, in effect, the 'minimum wage', depending on the nature of work and the geographical area.  In some cases and in some countries these are stipulated by law.  A typical, though somewhat broad, list of job factors is as follows:

In case of managers, the factors are:

Merit rating has been used as an indicator of performance.  Each employee is rated, typically as excellent, good, average or poor, in respect of the following abilities:

The rating, unfortunately, tends to be carried out purely mechanically and it carries a heavy bias of the rater who may be too lenient, may not be objective and may also have favorites or otherwise in the group being rated.

4.4 The Glacier Project

This relates to a major scientific investigation in a real life situation.  The Glacier Metal Company (UK) was the largest manufacturer of plain bearings in Europe employing some 4500 persons in six factories.  This was a unique experiment, commercially successful and probably without a parallel.

The project began in 1948 with the assistance of the Tavistock Institute of Human Relations and it sought to provide novel answers to baffling problems in industrial organizations.  Simply stated, once people get a job, they begin to lose interest in the work, hate their firm and soon organize themselves in order to pressurize the firm for higher wages.

The Glacier project used the task approach concept, under which the task is carefully analyzed and roles clearly defined in order to provide scope for peoples effective participation in the fulfilment of companies objective.  Work is seen to have two components:

The latter is more difficult of the two.  A supervisor, for example, has the discretion in matters of priorities, allotment of work and development of his or her department.  These elements determine the extent of responsibility and are the basis of the theory of equitable payment developed by the renowned psychoanalyst, Elliott Jaques.

According to this, wages should be related to the responsibility involved and this in turn depends on the discretionary elements.  Jaques developed a technique for measuring the time-span for discretion for different types of work and formulated a scale of equitable earnings for a labourer, machine operator, supervisor and engineer.  The Glacier model is far more comprehensive, but for our present purpose the quantification of wage differential serves as a motivator for better performance.

4.5 Payment by Results

One of the earliest and best examples of this is the Rucker and Scanlon plans introduced in the USA in the depression of the 1930s.  Joseph Scanlon was a union officer in the Penn Steel Mill which, as a result of the depression, was on the brink of extinction.

The aim of the plan was to reduce waste and increase efficiency with consequent increase of productivity and profits.  The savings and surplus resulting from implementation of the suggestions of the group are shared.  For equitable distribution, a committee has to administer the plan and the company has to disclose (McBeath (1974)) a considerable amount of financial data and be also prepared to share profits.

As a result the plan has not always been successful.  In a survey (Gruneberg & Oborne (1982)) of 44 cases, 30 were reported to be successful.  Thus success has been achieved in some companies and in some situations.  But the concept is sound.  The plan gives the participants a real sense of participation and self-esteem, and the group cohesion and motivation are increased in anticipation of the reward.  Other methods of payment by results include:

In each case, the savings or increased production are quantified in monetary terms and sought to be shared amongst the concerned people.  Earlier schemes were based on individual effort which could be appropriately rewarded.  However, modern technology and production methods are quite often based on a team approach, hence new schemes for payment by results have to be tried and implemented, if found effective.  In this case individuals do not get rewarded as a result of their own effort and it is the group performance which counts.  This requires a change of attitude of the workers, as also of the management.

Like the Scanlon plan, the management needs to be prepared to discuss openly with the workers / unions the real change / improvement in the relevant indices and this requires disclosure of otherwise confidential financial and production data.  In the long run, such an open attitude will benefit both.

Which scheme is best?

There is no such scheme! Each situation must be studied in depth and a suitable scheme 'tailored' for the specific situation.  Also important is the history and culture of the organisation concerned.  Anything radically different and without active participation of all concerned is bound to fail.  It is advisable also not to introduce drastic changes suddenly.  The system must be properly formulated and after full and frank discussion with the concerned people tried out on a 'mini' scale and refined in the light of the experience gained.

The main factors involved in selection of a suitable scheme are:

The micro versus macro aspect has been briefly touched on earlier in this chapter.  Both have their pros and cons and an ideal system may well be a combination of the two.  It is good to reward individual performance since it could act as an instant motivator.  On the other hand certain benefits result only from a group action and therefore must be shared among the entire group or even across the entire company.

Implementation of any scheme is the most important phase and it should not be rushed through.  Sufficient time should be allowed for discussion and suggestions from the concerned group.  At this stage all problems that may arise during implementation stage cannot be foreseen, but some of the obvious ones certainly can be anticipated.

Once implemented, both sides should be willing to modify the scheme in the light of the experience gained.  There should be no hesitation to refine the scheme until found completely satisfactory.  It will require full cooperation and complete honesty.


Money is certainly a motivator and a major one at that.  Success of companies such as of Microsoft, IBM and other such tech companies is certainly, at least to some extent, a result of such motivation.  There are, of course, other factors particularly job satisfaction as shown in the previous section.

Financial motivation improves productivity, which ultimately shows up in the 'bottom line', and part of the increased profits must be circulated back to the workforce responsible for it.  Some of the schemes for reward systems and payment by results have are briefly discussed.  The novel Glacier project and the Scanlon plan are briefly described.  There is no such thing as the 'best scheme'.  It must be formulated and 'tailored' to each specific case.

Crystal, G. S. (1970) Financial Motivation For Executives.  American Management Association.
Drucker, P. (1974) Technology, Management and Society.  London: Heinemann.
Ellig, B. R. (1982) Executive Compensation
Gruneberg, M. A. & Oborne, D. J. (1982) Industrial Productivity - A Psychological Perspective.  New
York: Macmillan.
Ivancevich, J. M., Donnelly, J. 11. & Gibson. J. C. (1983) Managing For Performance.  London: Business Publications.
Macbeth, D. (1982) Winning the Production Battle.  Management Today, 76.
McAfee, R. B. & Poffenberger, W. (1982) Productivity Strategies.  Englewood Cliffs, N.J.: Prentice-Hall.
McBeath, G. (1974) Productivity Through People.  London: Business Books.
Moore, R. F. (1968) Compensating Executives' Worth.  American Management Association.
Peters, T. J. & Waterman, R. H. (1982) In Search of Excellence
Companies.  New York: Harper & Row.
Sapre, S. A. (1980) Management Philosphers and Practitioners.  Bomby: Directorate of Printing and Stationery.
Sibson, R. E. (1976) Increasing Employee Productivity.  American Management Association.
Tack, A. (1979) Building, Training and Motivating A Sales Force.  Tadworth: World's Work.
Walley, B. H. (1980) Production Management Handbook.  Aldershot: Cower.
White, M. (1973) Motivating Managers Financially.  Institution of Personnel Management.

5. Human Relations

George Elton Mayo | Abraham Maslow | Douglas McGregor | Rensis Likert | Frederick Herzberg | David McClelland


Human relations are important to the development and long term sustainability of organizations.  They, human relations, can be interpreted in many different ways.  As many organizations and people see human relations from a completely different viewpoint.

However, human relations in the work environment and from a management point of view, we suggest, can be classified into two main points as follows:

The improvement of relations between all levels has long been accepted as a very important element in the development and improvement of any industrial organization, and there are few long term successful management's which have not exerted a great deal of effort in this direction.

There is, however, the possibility that the policy of improved human relations may be pursued solely because of its effect on productivity, and not from the more fundamental motive of producing a correct and balanced attitude to the personal and social needs of the workers.

Merely to aim for higher output may bring neither greater output nor satisfaction to the worker, but if the aim is to bring more personal satisfaction to the worker in his work and his surroundings, then both higher output and job satisfaction may be achieved.

Needs of an Individual

Good human relations can only be established if the needs of an individual are satisfied and his / her will to work is stimulated.  This presents the difficulty that management is dealing with a group of individuals, all of whom may respond differently in a given situation.

However, it is possible to generalize on the average response evoked in certain situations, and in the context of human relations in industry, it is possible to arrive at some general conclusions about man's attitude to work and the hopes, fears and aspirations he has regarding it.

The extent to which these hopes and desires are fulfilled in the work situation or working environment naturally governs the degree of job satisfaction derived by the worker.  The extent to which the personal job satisfaction is achieved is the measure by which each worker will apply his/ her abilities and will to work.

The Work Environment

The work environment describes the factors which affect an individual when he or she is at work.  It includes the:

There are many management theories on the effect of the work environment on individuals, achievement/ motivation and on working groups and it is, therefore, necessary to consider the view points and research of individuals who have been involved in this work.  Individuals who have contributed research and theories include those listed people below.

George Elton Mayo's Hawthorne Experiments

George Elton Mayo was in charge of certain experiments on human behavior carried out at the Hawthorne Works of the General Electric Company in Chicago between 1924 and 1927.  His research findings have contributed to organization development in terms of human relations and motivation theory.

Flowing from the findings of these investigations he came to certain conclusions as follows:

Abraham H. Maslow's Hierarchy of Needs

Abraham Maslow carried out his investigations into human behavior between 1939 and 1943.  Maslow suggested that there are five sets of goals which may be called basic needs.

These are:

He arranged these into a series of different levels or the order of importance of these basic needs.

Man's basic needs are physiological, for example, hunger, thirst, sleep, etc.  When these are satisfied they are replaced by safety needs reflecting his desire for protection against danger or deprivation.

These in turn, when satisfied, are replaced by the need for love or belonging to, which are functions of man's gregariousness and his desire to belong to a group, to give and receive friendship and to associate happily with people.

When these needs have been satisfied, there is the esteem needs, i.e. the desire for self-esteem and self-respect, which are affected by a person's standing reputation, and his need for recognition and appreciation.

Finally, individuals have a need for self actualization or a desire for self-fulfillment, which is an urge by individuals for self-development, creativity and job satisfaction.

The human hierarchy of needs proposed by Maslow are illustrated below.



In the past, management reward systems have attempted to satisfy an individual's lower level needs for safety and physiological security, for protection against deprivation and the threat to a worker or his family.

However, management reward systems are now, or should be, endeavoring to satisfy the individual's higher level needs for esteem and self-fulfillment.

Douglas McGregor -Theory X and Theory Y

Douglas McGregor in his book, "The Human Side of Enterprise" published in 1960 has examined theories on behavior of individuals at work, and he has formulated two models which he calls Theory X and Theory Y.

Theory X Assumptions

The average human being has an inherent dislike of work and will avoid it if he can.

Theory Y Assumptions

Comments on Theory X and Theory Y Assumptions

These assumptions are based on social science research which has been carried out, and demonstrate the potential which is present in man and which organizations should recognize in order to become more effective.

McGregor sees these two theories as two quite separate attitudes.  Theory Y is difficult to put into practice on the shop floor in large mass production operations, but it can be used initially in the managing of managers and professionals.

In "The Human Side of Enterprise" McGregor shows how Theory Y affects the management of promotions and salaries and the development of effective managers.  McGregor also sees Theory Y as conducive to participative problem solving.

It is part of the manager's job to exercise authority, and there are cases in which this is the only method of achieving the desired results because subordinates do not agree that the ends are desirable.

However, in situations where it is possible to obtain commitment to objectives, it is better to explain the matter fully so that employees grasp the purpose of an action.  They will then exert self-direction and control to do better work - quite possibly by better methods - than if they had simply been carrying out an order which the y did not fully understand.

The situation in which employees can be consulted is one where the individuals are emotionally mature, and positively motivated towards their work; where the work is sufficiently responsible to allow for flexibility and where the employee can see his own position in the management hierarchy.  If these conditions are present, managers will find that the participative approach to problem solving leads to much improved results compared with the alternative approach of handing out authoritarian orders.

Once management becomes persuaded that it is under estimating the potential of its human resources, and accepts the knowledge given by social science researchers and displayed in Theory Y assumptions, then it can invest time, money and effort in developing improved applications of the theory.

McGregor realizes that some of the theories he has put forward are unrealizable in practice, but wants managers to put into operation the basic assumption that:

Rensis Likert - Management Systems and Styles

Dr. Rensis Likert has conducted much research on human behavior within organizations, particularly in the industrial situation.  He has examined different types of organizations and leadership styles, and he asserts that to achieve maximum profitability, good labor relations and high productivity, every organization must make optimum use of their human assets.

The form of the organization which will make greatest use of the human capacity, Likert contends, is;

Organizations at present have widely varying types of management style and Likert has identified four main systems:

Management Styles

The exploitive - authoritative system, where decisions are imposed on subordinates, where motivation is characterized by threats, where high levels of management have great responsibilities but lower levels have virtually none, where there is very little communication and no joint teamwork.

The benevolent - authoritative system, where leadership is by a condescending form of master-servant trust, where motivation is mainly by rewards, where managerial personnel feel responsibility but lower levels do not, where there is little communication and relatively little teamwork.

The consultative system, where leadership is by superiors who have substantial but not complete trust in their subordinates, where motivation is by rewards and some involvement, where a high proportion of personnel, especially those at the higher levels feel responsibility for achieving organization goals, where there is some communication (both vertical and horizontal) and a moderate amount of teamwork.

The participative - group system, which is the optimum solution, where leadership is by superiors who have; complete confidence in their subordinates, where motivation is by economic rewards based on goals which have been set in participation, where personnel at all levels feel real responsibility for the organizational goals, where there is much communication, and a substantial amount of cooperative teamwork.

This fourth system is the one which is the ideal for the profit oriented and human-concerned organization, and Likert says that all organizations should adopt this system.  Clearly, the changes involved may be painful and long-winded, but it is necessary if one is to achieve the maximum rewards for the organization.

To convert an organization, four main features of effective management must be put into practice:

Features of Effective Management

The work groups which form the nuclei of the participative group system, are characterized by the following features:

Frederick Herzberg - 2 Factor Hygiene and Motivation Theory

Frederick Herzberg, contributed to human relations and motivation in terms of organization development, two theories of motivation as follows:

The first part of the motivation theory involves the hygiene theory and includes the job environment.  The hygiene factors include

These factors do not lead to motivations but without them there is dissatisfaction.

The second part of the motivation theory involves what people actually do on the job.  The motivators are

These factors result from internal generators in employees, yielding motivation rather than movement.

Both these approaches (hygiene and motivation) must be done simultaneously.  Treat people as best you can so they have a minimum of dissatisfaction.  Use people so they get achievement, recognition for achievement, interest, and responsibility and they can grow and advance in their work.

Therefore, the hygiene and motivation factors can be listed as follows:



Effects on Individuals of Working Environment

The working environment has an effect on individuals as follows:

Effects on Work Groups of Working Environment

Rensis Likert has already described how the various management styles in an organization can effect the groups in an organization. 

Whilst the working environment will affect individuals, it will undoubtedly have a greater effect on working groups, since whilst an individual may have certain needs, he will not obtain those needs if the working environment does not provide the needs of the working group.

The working group is the instrument of society through which in large measure the individual acquires his attitudes, opinions, goals and ideals, it is also one of the fundamental sources of discipline and social controls.

Therefore, the working environment has an effect on groups as follows:

David C. McClelland: Achievement Motivation

Over the years behavioral scientists have observed that some people have an intense need to achieve; others, perhaps the majority, do not seem to be as concerned about achievement.  This phenomenon has fascinated David C. McClelland.  For over twenty years he and his associates at Harvard University studied this urge to achieve.

McClelland's research led him to believe that the need for achievement is a distinct human motive that can be distinguished from other needs.  More important, the achievement motive can be isolated and assessed in any group.

Characteristics of people with a high need for achievement

McClelland illustrates some of these characteristics in describing a laboratory experiment.

Participants were asked to throw rings over a peg from any distance they chose.  Most people tended to throw at randomŚnow close, now far away; but individuals with a high need for achievement seemed carefully to measure where they were most likely to get a sense of masteryŚnot too close to make the task ridiculously easy or too far away to make it impossible.

They set moderately difficult but potentially achievable goals.  In biology, this is known as the overload principle.

In weight lifting, for example, strength cannot be in creased by tasks that can be performed easily or that cannot be performed without injury to the organism.  Strength can be increased by lifting weights that are difficult but realistic enough to stretch the muscles.

Do people with a high need for achievement behave like this all the time?

McClelland maintains, only if they can influence the outcome.

Achievement-motivated people are not gamblers.  They prefer to work on a problem rather than leave the outcome to chance.

With managers, setting moderately difficult but potentially achievable goals may be translated into an attitude toward risks.  Many people tend to be extreme in their attitude toward risks, either favoring wild speculative gambling or minimizing their exposure to losses.

Rewards and achievement-motivated people

Another characteristic of achievement-motivated people is that they seem to be more concerned with personal achievement than with the rewards of success.  They do not reject rewards, but the rewards are not as essential as the accomplishment itself.

They get a bigger "kick" out of winning or solving a difficult problem than they get from any money or praise they receive.

Money, to achievement-motivated people, is valuable primarily as a measurement of their performance.  It provides them with a means of assessing their progress and comparing their achievements with those of other people.

They normally do not seek money for status or economic security.


A desire by people with a high need for achievement to seek situations in which they get concrete feedback on how well they are doing is closely related to this concern for personal accomplishment.  Consequently, achievement-motivated people are often found in sales jobs or as owners and managers of their own businesses.

In addition to concrete feedback, the nature of the feedback is important to achievement-motivated people.  They respond favorably to information about their work.

They are not interested in comments about their personal characteristics, such as how cooperative or helpful they are.

Why do achievement-motivated people behave as they do?

McClelland claims it is because they habitually spend time thinking about doing things better.

In fact, he has found that wherever people start to think in achievement terms, things start to happen.


College students with a high need for achievement will generally get better grades than equally bright students with weaker achievement needs.

McClelland has even extended his analysis to countries where he related the presence of a large percentage of achievement-motivated individuals to the national economic growth.

A taught skill?

Can this motive, the need for achievement, be taught to people?

McClelland was convinced that this can be done.  In fact, he also developed training programs for business people that where designed to increase their achievement motivation.

He also developed similar programs for other segments of the population.

Achievement-motivated people

Achievement-motivated people can be the backbone of most organizations, but what can be said about their potential as managers? As we know, people with a high need for achievement get ahead because as individuals they are producers they get things done.

However, when they are promoted, when their success depends not only on their own work but on the activities of others, they may be less effective.  Since they are highly job-oriented and work to their capacity, they tend to expect others to do the same.  As a result, they sometimes lack the human skills and patience necessary for being effective managers of people who are competent but have a higher need for affiliation than they do.  In this situation, their overemphasis on producing frustrates these people and prevents them from maximizing their own potential.

Thus, while achievement-motivated people are needed in organizations, they do not always make the best managers unless they develop their human skills.  Being a good producer is not sufficient to make an effective manager.

McClelland has found that achievement-motivated people are more likely to be developed in families in which parents hold different expectations for their children than do other parents.

More importantly, these parents expect their children to start showing some independence between the ages of six and eight, making choices and doing things without help, such as knowing the way around the neighborhood and taking care of themselves around the house.  Other parents tend either to expect this too early, before children are ready, or to smother the development of the personality of these children.

One extreme seems to foster passive, defeated attitudes as children feel unwanted at home and incompetent away from home.  They are just not ready for that kind of independence so early.  The other extreme yields either overprotected or over-disciplined children.  These children become very dependent on their parents and find it difficult to break away and make their own decisions.

The Herzberg link?

McClelland's concept of achievement motivation is also related to Herzberg's motivation-hygiene theory.  People with high achievement motivation tend to be interested in the motivators (the job itself).

Achievement-motivated people want feedback.  They want to know how well they are doing on their job.

On the other hand, people with low achievement motivation are more concerned about the environment.  They want to know how people feel about them rather than how well they are doing.


According to David C. McClelland's research, achievement-motivated people have certain characteristics in common, including;