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Managing People

The effective management of people in an organization requires an understanding of motivation, job design, reward systems, and group influence.


Behavior Modification

Operant conditioning is the learning that takes place when the learner recognizes the connection between a behavior and its consequences.

  • Positive reinforcement vs. punishment: rewarding desired behavior vs. punishing undesired behavior.
  • Negative reinforcement: removing negative consequences from workers who perform the desired behavior.
  • Extinction: removing whatever is currently reinforcing the undesirable behavior.
  • Reinforcement schedules: variable, erratic reinforcement schemes are more effective than steady reinforcement schedules.
  • Classical conditioning: if one gets sick after eating tacos, from that point forward one may get sick from the smell of tacos. People are genetically hard-wired to make certain associations. For example, sickness is associated with food.


Expectancy Theory

The expectancy theory of motivation models motivational force as the product of three factors perceived by the individual. There is research evidence to support the theory, and it has become relatively widely accepted.


Principal-Agent Problem

In a company, stockholders are principals and managers are agents. The goal of a compensation system is to align principals’ and agents’ interests.

Executives who are compensated based on financial performance may favor diversifying the company since it evens out their incomes. But shareholders can diversify their portfolios on their own if they want.


Promotion Tournaments

The purpose of high executive salaries is to motivate those at lower levels by giving them a goal or prize for which to strive. If eight people are competing for a position, only one of them has to be paid the big prize, but they all are motivated.


Job Design

Scientific management took all authority away from the workers – no thinking was needed. Skill variety, task identity, task significance, autonomy, and feedback all were missing.

Giving people choices provides more job satisfaction. One way of doing this is to propose an alternative or two that is inferior, and ask for the employee’s opinion. An exaggerated example that illustrates this point: in selecting the foundation of a building, the manager, knowing concrete is better, can propose wood. The employee proposes concrete and gains satisfaction from “convincing” the manager of the right decision.


Equity Theory

People care about fairness and are willing to give up money to avoid unfair treatment.

An example of this idea is a game in which one person is handed 100 dollars, and this person must propose to give part of the money to a second person. The first person must propose the amount that he or she will give to the second person, and the second person can accept or reject the offer. If the second person accepts the offer, then it stands as proposed. If the second person rejects the offer, neither of the two people get to keep any of the money. Assuming that the two people never will deal with each other again, the rational decision of the second person is to accept any amount that the first person offers. However, if the first person offers only one dollar, the second person may refuse this low offer simply to punish the first person who is not offering a “fair” split.


Reward Systems

Employees like performance rating distributions in which almost everyone is at the top, but in which a few really get punished. Employees hate systems in which only a few get top ratings.

When people are given higher rewards than what they deserve, at first their performance improves, but then they start reasoning that they really are worthy and begin to slack off.


Efficiency Wages

For lower-level workers, performance increases with increased wages. Efficiency wages are wages set at a higher-than-market clearing wage, set by employers to:

  • discourage shirking by raising the cost of being fired
  • encourage worker loyalty
  • raise group output norms
  • improve the applicant pool
  • raise morale


Rationalizing Behavior

Cognitive dissonance is the state of conflict that one faces when one’s attitudes are contradicted by the situation that one is experiencing. In this situation, people often rationalize anything that is inconsistent in their minds. For example, one may come to love the things for which he or she is poorly compensated in order to resolve the inconsistency of doing something that one does not want to do for below average pay.


Characteristics of Jobs and Work that Substitute for Formal Leadership

In flat organizations, there are fewer opportunities to formally manage the work of others. In this situation, people may become de-motivated because they feel that they are not advancing. However, some environments have characteristics that can substitute for more formal leadership opportunities. These characteristics are:

  • Professional orientation
  • Performance feedback provided by work itself
  • Cohesive, interdependent work groups and advisory panel
  • Written goals and rigid procedures



Concurrence-seeking may become so dominant in a group that it overrides objective appraisal. In a cohesive group, individuals truly may believe that a bad proposal is a good one without scrutinizing it.


Managing Individual and Group Performance

When one person excels, the others do not look as good. Furthermore, good performance is often “rewarded” with increased quotas.


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