Using Pay as a Motivater
Business and Management
Submitted By togroske
Introduction Frito Lay Incorporated is the world leader in the snack food industry controlling over 35 percent of the world market and over 60 percent of the market in the United States. Frito Lay Incorporated started in 1961 merging the Frito Company with the H. W. Lay Company creating the largest snack food company in the world. Many of the company’s well known brands include Doritos, Lays, Ruffles, Cheetos Tostitos, Fritos, Smartfood, and Santitas, five of which create a billion dollars in sales or more annually. Frito Lay Inc., the snack food division of PepsiCo makes up about half of the parent company’s revenue and about two thirds of the company’s profits. Last year Frito Lay Inc. generated 48 billion dollars in revenue and employed over 48,000 people. The current role that I hold in the company is Route Sales Representative (RSR). This role consists of what they coin the “heart of the company,” and generates a major share of the company’s revenue. An RSR’s position consists of selling merchandise to the customer, delivering the product, stocking of the product as well as customer service. During the last 10 years the company has changed the pay structure that determines the compensation that each RSR receives. In doing this they have also increased the workload and amount of expectations that have been placed on the shoulders of the employees. During all of the events that were involved with the pay changes, the morale and drive of the employees continued to drop. On a daily basis you can walk into the office and see an obvious lack of interest in the day-to-day operations, growing lack of concern in increased duties or committee involvement, and an obvious decrease in motivation. Language such as: “wish I wasn’t here,” “this place is beating me up,” “this isn’t what I get paid for,” and “they don’t pay me enough to do this” are all voices that can be heard from the employees on a daily basis.
Every year lack of motivation increases around the office and management always seem to skirt around the true issues facing them. The amount of pay is not the issue, but it can be considered the root of the issue and the center of the lack of motivation. Policies continue to be instituted that take away from employee’s pay base concerning incidents that happen out in the market. It seems as though one of the ways that the company uses to increase profits is to take away from the employee. It sure can be a de-motivator when an employee knows that their paycheck is going to be hit for certain occurrences, instead of the company using those situations to motivate their employees. While it is understood that not every situation will affect each employee the same, the root of the issue needs to be determined so that a solution can be adopted that will cover as many of the employees as possible. Not every person has an issue with the pay as it currently stands, but many of the people that work for Frito Lay in the RSR position are unaware or think that there isn’t anything that they can to do to improve on the situation. The company set up the pay arrangement in two different structures, both of which are based on commission as the main driving force. This arrangement poses problem-- Frito Lay has set up an average that will allow each an every person to know approximately what amount of income they will be able to make in a year, and it is accurate within about 5 percent. Thus, when someone is employed by a growth orientated, driven company they are well aware of the fact that no matter how hard they work their pay isn’t going to vary much at all. This does not provide the kind of drive that is needed to enable this kind of company to continue to grow. Currently motivation remains the major downfall and many different determining factors exist as to why this problem persists, but employee pay tends to be one factor most relevant to the workforce. Other factors that might cause the downturn trend of motivation are: increase in the number of hours worked, decrease in benefits given or available, increase in amount of pressure regarding sales, and so on.
Creating a work environment conducive to high levels of work is the goal for any organization, but defining the steps necessary to create a high-level work environment presents a major issue for all companies. Many companies face another major issue--determining when and why employees have fallen into a rut of a lack of motivation. According to Maynard (1997) some of the often-subtle signs of discontent in the work force are: workers rarely participate actively in meetings, workers display no creativity or innovation, most people are routinely in a hurry to leave work exactly at the end of their shift, workers seldom smile—until it is time to leave, and employees shut management out of their personal lives. Some companies see these signs on yearly, monthly, weekly or even a daily basis, but yet fail to determine the root cause of these behaviors. Not immediately determining the cause of these problems might result in motivational problems that could hurt all levels of the company. Although Frito Lay is a very large company with many levels of employees, failure to stop declining motivation at the lower levels of employees can easily be felt at all levels of the company. Although the current pay structure that is in place could be considered a pay-for-performance structure, which is commission, it has turned into almost the reverse and seems at times be a de-motivating factor in employee self esteem and drive in the company. Determining what is involved in a pay structure that will align it with motivation is what is will be an important part of what I will discuss in this paper. Every employee using the new proposed pay structure may to be affected in different ways, but the key to determining what will be most affective will include all of the following components in attempt to reach each and every person with the new reward system:
• Clearly defined and are objectively determined rewards
• Clearly aligned with the companies mission and objective
• Goal and results driven
• And finally Results must be continually monitored and posted
This system will increase sense of motivation toward the goal creating a more rewarding and successful job while growing the company at the same time.
Is motivating with pay the best way to reach the end result? YES! When a person is looking for a job, considering a job and mostly when taking a job, pay is usually the most important factor. The issue for the company is structuring a pays system that promotes growth and rewards at the same time. As stated by Rynes, Gerhart, and Minette (2004) “Money is the crucial incentive…no other incentive or motivational technique even comes close to money with respects to instrumental value.” With this in mind people are driven by money and it must be considered. They go on to say that “research suggests that pay is much more important on people’s actual choices and behaviors than it is in their self-reports of what motivates them.” People don’t always recognize that money is what motivates them, but truly when it comes down to it money is the root of all motivation, money is tangible and can be seen making a difference. When it is determined that a bonus structure is to be used to drive the performance and the outcomes of the employee, they need to be given in a timely manner, so that it can continue to be considered relevant on a day-to-day basis. “Timing of monetary incentives, even if compensation is closely tied to performance, most managers know that the motivational impact of additional compensation is, at best, short lived. While some employees may respond with a sudden burst of energy, many employees regard increased compensation as a reward for past performance. One way to address this problem is to modify the timing of compensation increases. For example, in a mixed compensation scheme, lump-sum payments for exceptional performance must be awarded on a quarterly or seasonal basis rather than once a year” (Jeffords, Scheidt and Thibadoux, 1997). Management never wants their employees to lose site of the goal at hand. One of the least effective forms of bonus payouts is when it comes once a year, such as a Christmas bonus. Some employees don’t even remember it is coming until when the season is near and then it almost becomes an expectation. If management continues to create excitement around the upcoming bonus then they know that their people will continue to be engaged. Placing these bonuses every three months (quarterly) will keep them within eyesight and continue to create a tangible goal. “It is very important to the integrity of the program to have in place checks and balances within the system, individual goals aligned with those of the organization, and continuous training and education to ensure objective and consistent applications of the program” (Candio, 2007). Every pay-for-performance program that is put into place needs to have a constant form of monitoring as well as a stat sheet that continues to tell the employees how they are doing, and what might need improvement. If the employee continues to see a scorecard that is current and one that is informative they will continue to drive toward the goal of the bonus. This becomes very important because as soon as management ignores this, the employee may lose sight of the company’s objective and may stop shooting for the goal. Bonuses are very multi-faceted and need continual monitoring. Along with monitoring, bonuses need to be clear and understandable, people need to be able to monitor their progress though simple easy to understand guidelines. If this doesn’t exist a structure that is designed to motivate may easily have the opposite effect. “For this motivational system to work effectively, it is necessary that there be clear standards for performance which workers can understand. Then, performance has to be monitored, and rewards must be administered consistently. Further, the output must be quantifiable so that performance can be measured.” (Deci, 1973) When structuring any bonus program all of the determining factors must be reachable for every employee, not just the top performers. Understandably, the top performers are going to be able to hit the numbers and be able to bonus according to the plan, but it is as important to make it obtainable for the lower performing employees giving them the drive to hit the number and become an equal to the top performers. “The 80/20 rule applies: 80 present of your results will probably come from 20 percent of your worker. You have to reward those top performers. To motivate the rest of your staff, they must perceive the reward as something they could achieve if they put in the necessary work. The reward will not motivate people who believe that someone else has an unfair advantage in getting it.” (Bragg, 2000) Making the reward obtainable for every employee is a very important part in creating a successful pay for performance system. Another important part of any bonus plan is that it needs to fit in with the structure of the company. It needs to be aligned with the company’s goals and within the mission of the company in order to be successful. One insightful company according to Candio (2007) was MD Anderson; “they were forward-thinking an innovative in linking their performance management system to one of their key strategic goals of becoming an employer of choice. This clearly fosters goal alignment and creates a roadmap toward organizational success.” Just as any program that would be designed for any company it needs to be created with the organizational mission in mind while allowing its people the chance to foster within the guidelines that the company clearly defines for all of its employees to follow. Motivation is the key to any performance based pay system and according to Rynes, Gerhart and Minette, (2004) “there is strong evidence that pay is a powerful motivator—perhaps the most powerful potential motivator—of performance. (We say “potential” motivator because in order to motivate, pay must be noticeably contingent on performance.) Designing a program that is purely results driven may not be the best design, but it must be highly dependent on the results that are produced.” All though results can be calculated many different ways each and every system should bring you back to the bottom line of the company assuring that the results that are produced are beneficial profitable for the company. “ In fact, meta-analytic results do not reveal any motivational intentions that work better than performance-contingent pay for enticing people to attain higher performance levels.” (Rynes, Gerhart, Minette, 2004) Consequentially pay is not the only form of motivation, but if used properly it can become the most effective form of motivation. “The reward system must be structured so that receiving pay depends on good performance. Money will then motivate performance because performance is instrumental to receiving payments. If money and performance are not tied together, money will not serve as an effective motivator.” (Deci, 1973) Considering the business of Frito Lay Inc. and the customers that they target, what type of pay structure would benefit the company and the employees alike, and would allow company growth along with increased motivation and moral of its RSR’s?
Analysis of the Problem
The problem that seems to be in place is that the company’s RSR’s are beginning to take for granted the pay that they are currently receiving, and not gaining the needed motivation through the current pay structure. Frito Lay Inc. is a very growth driven organization that expects the results to be there and when they are not the leadership begins to panic. In the current situation an employee knows that if they go in and work a normal 45 hour work week they will make almost the same amount of money as the employee that goes out and works a 55 hour work week, and no matter how hard they try they are going to be within about 5 percent of the same pay as the person that works their butt off. Understanding the employee and creating a pay system that feeds off the employee and creates motivation is key in creating a pay for performance system that works. According to Deci, (1973) there are two areas of psychological research that have provided support for this assumption about motivation.
1. Behaviorists have substantiated and refined the Law of Effect, which states simply that when a response is followed by a reinforcement it will have an increased probability of recurrence. Contingent payments presumably reinforce the response of producing output and should, therefore, strengthen that response.
2. The use of contingent payments can also be defended by cognitive theories of motivation. These theories state that man’s behavior is goal directed; in other words, man will engage in behavior which he believes will lead him to desired goals. Since money is probably one goal all workers accept, cognitive theories would suggest that a worker would produce efficiently in order to get substantial wages, if that was the easiest way he could get them.“ Not understanding this can create a stagnant production issue where the employee is no longer motivated to perform based on the current pay structure. As it seems with Frito Lay Inc. they either are blind to the issue at hand or they are unwilling to change the structure as it currently stands. Another issue with the current plan is that it isn’t enticing enough to allow the company to be able to bring in the top talent either out of college or from other companies. “Research suggests that individual pay-for-performance schemes are most important to high academic achievers, high-performing employees, and individuals with high self-efficacy and high needs for achievement” (Rynes, Gerhart and Minette, 2004.) As it stands right now they have to bring in the people that they can get as opposed to the top people. “It is important to consider that some of the most sought-after and desirable employees do not wish to work in systems that do not differentiate individual performance” (Rynes, Gerhart and Minette, 2004.) Being that the discussed position is a sales position, it is important to bring in the best people, the people that strive on their individual performance, as well as outgoing well spoken individuals, and according to Rynes, Gerhart and Minette (2004), “pay is more important to extroverts than to introverts”. The one last issue that is present is the high amount of turnover that Frito Lay Inc. has in its RSR staff. With a turnover rate of about 25 percent it creates a revolving door effect that becomes a very costly measure for the company. It becomes hard to efficiently service the customer because they always need to get used to working with new people. Much of the business that comes together with Frito Lay Inc. takes place with relation-based selling and if you don’t have any tenure with your customer it is very hard to sell in this fashion. So, creating a pay structure that will entice employees to stay will be rewarding for the company as well as very cost effective. According to Candio (2007,) “as organizations face employee turnover challenges, having a pay-for-performance system fosters retention of top performers.” Rewarding employees for the hard work that they do is a very good way to keep them. According to Vroom’s Expectancy theory; motivation is a result of a rational calculation—people will do what they can do when they want to do it. (Schermerhorn, Hunt, Osborn, Uhl-Bien, 2010) This is a very important part because when you are paying an employee based the work that they did, the goal that they achieved, the customer that they gained, and so on, you are basing the pay that they receive on a rational calculation. Putting the exact criteria in plain sight is very important in the motivation of each in every employee. Each pay-for-performance system, in order to work properly must have a very specific set of goals in place so that the employee will know exactly what they are working towards, it is also important that they know what the financial stipend will be for goal that is reached. According to Schermerhorn, Hunt, Osborn, Uhl-Bien (2010) there are five main guidelines for setting goals:
1. Difficult goals are more likely to lead to higher performance than less difficult ones.
2. Specific goals are more likely to lead to higher performance than no goals, vague goals or very general ones.
3. Task feedback, or knowledge of results, is likely to motivate people toward higher performance by encouraging the setting of higher performance goals.
4. Goals are most likely to lead to higher performance results when people have the abilities and the feeling of self-efficacy required to accomplish them.
5. Goals are most likely to motivate people towards higher performance when they are accepted and there is a commitment to them.
Each of the guidelines gives specifics as to how to set goals and what will make the goals more enticing to motivate people towards increasingly better results. The more motivated each employee is to reaching their goal the better off each employee will be as well as the bottom line of the company. The last thing is that it is important to truly reward someone with pay using this system, make it so that each person will be able to notice a sizable difference in income based on the amount of work that is done as well as reaching the goals that are set forth. Performance-contingent pay says that you earn more the more you produce and you earn less when you produce less (Schermerhorn, Hunt, Osborn, Uhl-Bien, 2010.) With this system it will not only provide you compensation for the hard work and dedication that you put it, but it will give you a substantial reward based on reaching goals that have been outlined for you.
The first potential solution that could be utilized would be a based off a system that was created by Jack Welch. This is called the 20-70-10 system, this is a reward, growth, and remove type of system. This is more than just a compensation system; it is a total organizational shift and will take a few years to completely implement. With this system a base plus bonus structure will be in place, and it will reward based on the output that each employee puts forth. Not only in this system will there be a bonus, but will also have annual reviews that could potentially raise an employees base pay. Some of the criteria for the bonus will be based off of the employee meeting sales quota, maintaining company stated “controllables” such as: avoidable injuries, out of date product, return of resalable product and so on, as well as participation in committees and other growth opportunities. The first thing needed to take place in this system is that the management team will have to define a set criteria for which the bonuses as well as the performance reviews will be based. Secondly, quarterly and annual reviews will start taking place. The next step will be the communication that needs take place explaining what the bonus structure will be, what the compensation will be, the time frame for receiving rewards as well as when the new compensation system will be started. This system is also a people development system, which will allow for growth in the people and the company as well as the pay of the employee and the bottom line of the company. The 20-70-10 is used for leading the top 20 percent, developing the middle 70 percent and working out the bottom 10 percent and replacing them with better more capable employees. The second solution would be to stick with the commission system and add a bonus structure on top of the commission. This system would be very similar to the current system, but would involve a second form of pay as a motivator. This structure could use the same bonus criteria as listed in the first solution, but using the commission more as a sales/quota incentive and use the bonus more for rewarding the controllable. It would need to be determined if a secondary reward should be included in the bonus for reaching sales goals. This provides for a system that will be completely results driven and would hold some uncertainty. This would also involve more coaching as to how all-around results could affect the pay an individual receives. The third solution would be a tiered structure that would have pay that would increase based on reaching certain goals and objectives. The first level would start with objectives that include: attendance, ongoing education credits, sales, planning and so on. These would be very obtainable, but would only include a small amount of pay. The next tier would be more results driven and mostly based on sales numbers. This would be the first big pay jump, thus creating a want to get to the next level. Again, this level would be based on results. Over time this could show an employee that a substantial income could be obtained and is reachable, but again it will hold uncertainties. This would be more of a tricky solution to set up because it would need to be a driver, but would also need to be substantial for both sides, the company and the employee. The next part would be to decide at what levels pay would increase and what the goal would be to reach that level. This needs to be reachable, but it should be difficult enough to drive people toward the results. The most important part to consider is to make sure that the goals are lofty yet reachable, and that the reward is worth the goal. Going with the first solution would be the best, based on all of the different factors that would add up to drive growth for both the company and the individual. With the base pay that is involved it would aid in the personal growth of each employee. This would allow each employee to know where their strengths and weaknesses are, and keep them working towards developing themselves and working on their weaknesses. With the bonus structure each employee would be given a results-driven growth model to work from and will allow them to use the pay as a motivator and will drive results for the company as well as add to the company’s bottom line. Working the bonus on a structure that includes different aspects will keep the employee focused on all aspects of the business that will grow the bottom line including, sales, out-of-dates, labor hours, safety, as well as other areas of attention. As stated above this would be rolled out over a period of time introducing the employees to the different aspects, one piece at a time, allowing them the proper communication to fully understand all aspects of the change taking place. As with any major change it is very important that all people involved are well informed on all of the changes taking place. Along with the pay structure changes, performance reviews should also begin with an explanation as to why they happen and what to expect out of the changes. With this system not only will there be a possibility of a substantial increase in earnings, but also an increased potential for personal and professional development will also be in place. If followed completely this will create growth for the company through increased motivation, the hiring of more quality employees, and create increased dedication to the company. It will also affect both the work life balance and the moral of the employee.
Reflection As I was doing research on this paper it helped me to understand how important motivation is when it comes to the output of the employees. No matter how you reward an employee for a job well done or achieving a quota, some sort of reward is a very important part of being a successful manager or leader. It really solidified in my head its importance and I now know that it will be important to my success as well. Another big thing that I was able to learn while doing this paper was how to understand and read the sign that an employee is putting out, and understanding that each and every person acts the way that they do for a reason. Being able to see the trends of an employee and being able to understand how their work is being affected is going to be a very important part of how successful I am in any future rolls that I hold in the Human Resources profession. I also have been able to see and explain to people at work as well as people that I come into contact with what the importance of setting up a system such as pay for performance is, and what it will do to affect the outcome of the employees who are apart of it.
Being able to create a strong background with knowledge of any type is important to being successful in the business world, future classes in school, and multiple facets of my personal life. The knowledge gained and information used for this project will play a vital role in all of my future endeavors.
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