CASE STUDY 1 Times have been tough in the plastic knob business. Ask Ed Rogan, t

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CASE STUDY 1 Times have been tough in the plastic knob business. Ask Ed Rogan, the owner of Rogan Corporation in Northbrook, Illinois, and he'll tell you how the introduction of electronic controls on calibrating instruments has lost him many of his customers. A declining market made pay raises for his 107 employees out of the question, which in turn made it tough to keep them from bailing out—never mind motivating them. Rogan's solution was to give his employees an incentive to find ways of cutting costs by giving them a share of the savings. The hundreds of ideas he received not only helped the company to stay afloat but earned the employees an extra 17 percent of their annual salaries in recent years.The key to the success of Rogan's approach is that sharing improvements encourages employees to take responsibility for their own work. A similar idea is used at Aspect Communications, a communications equipment manufacturer in San Jose, California, where instead of pegging bonuses to savings, pay is linked to two aspects of customer service: the amount of time the company's product is operational, and measures of customer satisfaction. The basic idea, explains CEO Jim Carreker, is that for the company to be profitable, employees must demonstrate a long-term commitment to customer service. This approach has kept all of Aspect's 400 employees carefully watching the measures on which their pay (and their customers' satisfaction) is based. And it has kept them quite happy with their paychecks! Paychecks also have been full of pleasant surprises for the 190 employees of the Calvert Group, a financial-management company based in Bethesda, Maryland. These checks include bonuses for outstanding performers and regular distributions of the company's profits. The better the employees perform, the better the company does—and the more the employees make. Says Butler Perkins, a microcomputer-support analyst, "We all know the things we have to do to make more money.'' And, it appears, Calvert employees are doing those things. This is only part of what the Calvert Group does to show appreciation for its employees, however. In a very unusual move, the company also reimburses its employees' commuting expenses. If you walk to work, the company will even reimburse the cost of a pair of running shoes. To save on other expenses (e.g. dry cleaning) still further, Calvert has dropped its dress code, thus allowing employees to come to work in casual clothes—a feature they all like very much.questions to answer

(1) Explain how concepts of organizational justice may be used to explain the success of the incentive programs described here

.(2) Effective incentives involve more than just money. Explain what these three firms are doing in recognition of this fact

.(3) What basic tenets of expectancy theory are illustrated by the innovative incentive systems described here?

Explanation / Answer

(1)

Organizational justice refers to employees' perceptions of fairness in their workplaces. There can be four distinct form of justice - distributive, procedural, informational, and interactional justice. When we talk about the compensation, it is related to the distributive justice. In distributive justice, the risk and reward need to be equally distributed among all the members of a society (organization). Note that these firms are linking the compensation directly with the performance measures and distributing the profit of the company among the employees. Therefore, the employees are now equally exposed to the risk of the loss incurred as well as to the gain for any profit realized.

(2)

These firms are focusing on what is called a Total Reward for the employees. They are taking few effective steps in retaining the employees. First, the pay is directly linked to the performance measures. Second, the profit of the company is getting distributed among the employees equally and then the top performers are given bonus amount. They are also focusing on the benefits parts such as commuting cost reimbursement. Finally, the focus is on the overall reduction of expense (i.e. an increase of value) for the employees by taking steps such as eliminating standard uniforms.

(3)

The Expectancy Theory assumes that employees' behavior results from conscious choices among alternatives whose purpose it is to maximize pleasure and to minimize pain. There are three factors which create the motivating force - expectancy, instrumentality, and valence. Expectancy is the belief that effort makes the performance. This is one of the most crucial building blocks the companies in the above case are considering. Employees are putting efforts because they understand that such effort will be the determinants of their performance. Second is the Instrumentality which is the belief that performance will lead to the desired outcome. The direct link between the pay and performance is creating instrumentality for the employees. Finally, the valence which is the value perceived by the employees for the outcomes is also getting captured because the companies are focusing the overall value of the compensation (i.e. pay plus reimbursement minus expense).

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