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Empowerment

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Empowerment, Motivation, and Performance: Examining the Impact of Feedback and Incentives on Nonmanagement Employees

By: A. Drake, J. Wong, & S. Salter

Behavioral Research in Accounting, Volume 19, pp. 71-89

Renee Claussen

Janet Page

Kevin Sandmann

Matt Schlemmer

Micah Shornack

Empowerment, Motivation, and Performance: Examining the Impact of Feedback and Incentives on Nonmanagement Employees

It has been proven that the motivation level of employees can make or break an organization. This motivation level can be increased by the feeling of empowerment, and when the motivation level increases, so does organizational performance. Empowerment, a psychological concept, is greatly influenced by one’s habits, values, and surroundings. A model of psychological empowerment was developed by Gretchen Spreitzer, Professor of Management and Organizations at University of Michigan, and it is based on a survey of mid-level managers. Her model explains that by providing employees with performance feedback and rewards, the feeling of psychological empowerment will increase.

In contrast to this model, Drake, Wong, & Salter (2007) conduct an experiment which uses subjects representative of lower-level employees, rather than mid-level managers. They choose to focus on lower-level employees because little research has been published that investigates the ideas of empowerment within this group (Drake, Wong, & Salter, 2007). The lower-level employees are directly involved with data processing, data entry, manufacturing processes, and customer service, or they are on the front-line of service-based firms, having to provide services to their clients (Drake et al., 2007).

Their main question and goal of the research is to examine the effects of certain types of performance feedback and rewards on three dimensions of empowerment: impact, competence, and self-determination (Drake et al., 2007). They hope to discover whether empowerment actually leads to higher levels of employee motivation and ultimately, increased firm effectiveness and profitability. Plus, they want to determine if the feedback and rewards have similar or dissimilar effects on the dimensions of empowerment as Spreitzer’s survey found in manager-level employees.

KEVIN’s portion (#2 & #3) -

Essentially, all acts of business are facing increased accountability. This includes all the normal aspects like proper cost allocation for things such as raw materials and labor hours, but now it even includes a balanced scorecard approach to increasing employee motivation, learning, and growth through empowerment. Until now the research done on empowerment has focused on mid-level management with little research devoted to the lower level employees who spend a significantly larger amount of time dealing directly with the customer. As companies are concerned with operating at optimal levels throughout the organization, it is more important than ever to figure out if the same factors that alter feelings of empowerment in mid-managers are the same for employees, or if they are different, what they are for the employees.

In terms of practical application, there is high incentive for upper management to understand how best to motivate it’s employees because that motivation could come with cost increases or potentially cost savings from wages if the proper non-financial incentives exist and are subsequently found. In theory, it has been thought that when a positive motivator is found it is applicable to all three dimensions of empowerment (perceived impact, competence, and self-determination), but in reality it is shown in the study that these three dimensions are often not correlated with one another by the same motivator and are even sometimes negatively correlated. Practically, upper management would be best suited to be able to identify specifically which dimensions of empowerment it wishes to motivate in order to achieve the desired levels of efficiency it requires. With the information in this study, they should be able to do just that.
MATT s portion (#4 & # 5)

The study has four sets of hypotheses that work in a chain system. The first two sets of hypotheses focus on how feedback and wage system affect an employees view of his or her performance. The feedback and wage systems are hypothesized to show a direct relationship to the three characteristics of empowerment. The first set of hypothesis states better feedback methods result in higher levels of perceived impact, competence, and self-determination in the employee. The theory behind this hypothesis derives from Spreitzer’s model from 1995, where he said the better performance information that is available, the better the overall perceived impact, competence, and self-determination.

The second set of hypotheses has a similar structure to the first set, but is focused on the wage system of the employees. The study examines the affects of a flat wage based pay versus a performance based pay system. The study hypothesizes that performance based pay systems result in higher perceived levels of impact and competence, but lower levels of perceived self-determination. The theory behind this set of hypotheses also comes from Spreitzer’s model, where he says “performance based rewards are predicted to have a positive effect on perceived competence and impact.” The negative effect on self-determination comes from an employees feel like they must be working at a really high pace while also increasing effort levels immensely.

The next set of hypotheses connects the three characteristics of empowerment (impact, competence and self-determination) to task motivation The study predicts all three characteristics of empowerment have a positive effect on task motivation. This theory comes from a number of past studies done by Spreitzer (1995 and 1996) as well as Thomas and Velthouse in 1990.

The final hypothesis is “Higher levels of task motivation are associated with higher performance.” The theory behind this hypothesis is an increased task motivation will result in high performance, which in this study is measured by profit.

JANET s portion (# 6 a & b)

The research method employed by the authors was designed to replicate a task done by lower level employees. The task is described as a “simple decoding exercise”. Each employee is given a decoding key and packet of codes to solve. The codes were considered “solved” when all letters had been decoded into numbers and then summed. Each employee was given some choice regarding what kind of work they would like to do. The employee could choose to solve “A Codes” or “Z Codes”. The “A” codes were simpler than the “Z” codes.

The authors employed a three-by-two between subjects design. The independent variables for this study were the reward system the employees faced and the type of feedback they received after each session was finished. The reward systems consisted of either a flat-wage or performance based scheme. Subjects in the flat-wage pay program received a flat 2.50 for each completed set of numbers and subjected in the performance-based program received a percentage of profits they generated for the firm. Profits were generated by earning 20 dollars in revenue for each correct “A” Code or 60 dollars in revenue for each correct “B” Code, and incurred a cost of five 5 dollars for each incorrect “A” Code and 25 dollars for each incorrect “Z” Code.

The employees then received one of three types of feedback. The first type of feedback was information strictly based on whether they had earned their wages for the period. Those employees under the flat-wage program learned whether they had earned 2.50 flat-wage amount and those under the performance-based program learned how much they earned based on their profit for the period. The second type of feedback included not only the pay information but also the number of codes they got correct and incorrect. The third type of feedback included pay for the period, number correct/incorrect of each code and information about the specific amount of revenue and costs they generated as a result of correct/incorrect responses.

The study consisted of 125 undergraduate students; each student was randomly assigned to one of six experimental conditions. The authors chose this group of subjects because they would, collectively, have little managerial experience. As part of the study, each participant was asked to take a pre-study questionnaire that collected demographic data as well as measures of self-esteem and locus of control. Three demographic variables: gender, age and class level were used as covariates to determine effects on dependent variables.

The dependent variables in this experiment are the three facets of empowerment – impact on firm profit, task competence and self-determination. The authors use the independent variables described above (feedback, reward) to develop a framework to explain how different combinations of feedback and rewards can impact all or some of the facets of employee empowerment.

Once all results were submitted, the data was then analyzed to determine relationship between latent factors and observed responses. Next, the authors applied other statistical measures to identify paths to create a final model of employee empowerment and motivation.

RENEE’s portion (# 7 & #8)

It is noted that the use of demographic information, such as gender, age and class level were used as covariates, but did not have a material effect on the results reported. 59.2% of the subjects were male vs. 40.8% female. The average age was 21.4 years. 85.6% of the subjects were from the U.S. or Canada, 8% Asian and the remaining 6.4% were from Europe, Latin America or other nations. Sophomore and Juniors made up 79.2% of the subjects. Freshman were 6.4%, and the remaining 14.4% were seniors or masters level students. A variety of business majors were included with the highest percent being from information systems, finance and accounting. Finally, the average self-reported GPA was 3.05.

In regards to the first set of Hypotheses, which states better feedback methods result in higher levels of perceived impact, competence, and self-determination in the employee, it was found that feedback level is significantly correlated with only impact. Also, there was significant correlation between competence and self-esteem. This is consistent with prior literature. A substantially higher level of perceived impact on profits was noted under the highest level of feedback, which is financial compensation. As expected, the flat-wage revealed an equally low perceived impact under pay only and nonfinancial conditions. There was no significant correlation between feedback level and competence or self-determination. Even though there appears to be support for the hypotheses, they should be carefully considered. This is important to the findings in that basing rewards on profitability without providing this type of feedback was not enough to create a high level of perceived impact on profits in comparison to the flat-wage.

The second set of hypotheses predicted the performance based reward system would be associated with greater perceived impact and competence. This prediction was shown to be untrue. There was no significant correlation between performance-based rewards and impact. A significant negative correlation was found between performance based rewards and competence and self-determination. After further analysis on competence was performed, it was found that due to data limitations, it is likely that performance affected perceived confidence. The ANCOVA was run controlling both the variables of performance and self-esteem. The results still yielded a significant negative relationship between performance-based pay and competence. This indicated that for subjects of equal self-esteem and performance, the performance based reward system produced lower levels of perceived competence than the flat-wage system. This finding is important in that this shows the subjects more than likely focused more on the negative portions of their performance. Their decreased pay for their incorrect items seemed to be more outstanding to them than their gains for the correct items.

The third set of hypotheses predicted that “perceived impact, competence, and self-determination would be positively related to overall task motivation.” Only a significant correlation was found between motivation and perceived impact. An analysis of the path model showed insignificant paths between motivation and both competence and self-determination. This resulted in the removal of those links from the final model. Due to the strong effect of performance-based rewards and overall task motivation, this link was added to the final model. This finding signifies that a subject’s perceived impact will greatly affect their overall task motivation. Their competence and self-determination are insignificant factors.

The fourth and final hypothesis predicted a positive link between overall task motivation and performance. This hypothesis was shown to be true. A positive and significant correlation was shown between these two factors. This is an important finding. If the subject’s overall task motivation is high, then their performance will be high leading to greater production for a company.

All of these findings are significant and should be considered in choosing an incentive program for non-management employees.

MICAH’s 2nd portion (#9 & small conclusion)

References

Drake, A., Wong, J., & Salter, S. (2007). Empowerment, motivation, and performance:

Examining the impact of feedback and incentives on nonmanagement employees.

Behavioral Research in Accounting, 19, 71-89.

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