[MUSIC] In this session we are going to talk about pay and performance. That is when can pay be used to increase performance? What are the conditions and the limitations on that? Suppose you're the manager of an enterprise, a car dealership or a store, will offering bonuses for pay for performance guarantee an increase in performance? The answer to that is not necessarily. A useful framework for analyzing when and how performance related pay will and will not work is Vroom's famous VIE theory. Vroom's theory dates back to the mid 1960s, so it is not a new kid on the block, and it is not beyond criticism. But nevertheless, it is a useful analytical tool. Vroom proposed that a person will consider three basic factors before deciding whether or not to make effort. Valance, instrumentality, and expectancy. Valance just equals the value. It is the question do I value the reward I am offered enough to make an effort? Expectancy is the question do I expect that if I make an effort I will achieve the performance that will bring me the reward? And instrumentality means if I reach the desired level of performance, can I be certain I will get the reward? Looking at these more closely, valence, a manager should not simply assume that a particular level of financial reward will be valued by their staff. There will always be the question of, how much does there need to be in any given situation? Then coming on to expectancy, a manager also has to really evaluate whether staff will believe that they can achieve the desired performance. Do they need, or think they need training, better equipment, better supervision, etc. And finally, instrumentality. If the employees don't trust the system, and in particular, if they don't trust the systems and the people who will assess their level of work, then offering pay for performance will not work. >> Can you believe that Charlie's getting paid more? >> I know. It's ridiculous. >> I don't understand it. >> It's not like she doesn't even work than the rest of us. She really doesn't, if you've seen her. Do you ever see her working? >> Yeah, sure. And also I mean I don't want to play the age card but look, I need the money. I'm nearing retirement. Shirley is comfortably off, her husband works. >> I see what you mean, but the point, Shirley just literally does nothing around the office. But she actually looks like she does stuff. >> Yes, yes. >> She is one of those. Yeah. >> Yeah. That's a great skill I think. >> That was it. And then she's got everyone fooled because she's all like hi hi hi. >> [CROSSTALK]. >> And always got a pen in her hand, and note paper and note pad. But if you could read it would you ever see what was on it? >> [LAUGH] >> It's ridiculous. >> Yeah. >> I don't know, I don't understand it. Well, what do you do? >> We should say something. >> What can you do? >> I don't know, I think maybe we should say something. >> Marsden and Richardson's classic study of why Performance for Pay System, introduced in the UK Inland Revenue, the government's tax authority, failed. They found a clear majority of staff supported the basic principle of Performance for Pay Systems, but the actual Performance for Pay System failed. Staff felt rewards offered was simply too small to justify making a great effort Balance. Staff felt they were already working at an appropriate level and could not improve it, expectancy. So, for managers to successfully introduce the payments rewards system, he or she must consider the values of balance, instrumentality, and expectancy if it is to succeed. A badly design payment for a reward system will fail. Thank you. In the next session we will look at the importance of pay and attracting and retaining employees. [MUSIC]
