Lecture 2: Money & Motivation

Question 1

Are people with above-average income happier?

Answer 1

Relatively satisfied with their lives but barely happier than others in moment-to-moment experiences, tend to be more tense, and do not spend more time in enjoyable activities

Question 2

What have surveys indicated over decades regarding happiness?

Answer 2

On average, global judgements of life satisfaction have not changed much over the last 4 decades despite increases in real income per capita. Reported life satisfaction and income are positively correlated in a cross section of people. But, the correlation between income and wellbeing is weaker when a measure of experienced happiness is used instead of a global measure

Question 3

Focusing illusion

Answer 3

When people consider the impact of any single factor on their well-being, they are prone to exaggerate its importance. It is a source of error in decisions people make.

Question 4

What is the evidence for the focussing illusion?

Answer 4

• correlations can change depending on the order in which questions were asked (like how happy are you and how many dates did you have last month)
• general life questions are susceptible to focusing of attention

Question 5

How was the focussing illusion tested?

Answer 5

Participants were asked to estimate the percentage of time that they had spent in a bad mood the preceding day and estimate the percentage of time that people with high and low income spend in a bad mood. This was compared to the actual reports. Results found that bad mood was overestimated and the predicted prevalence with hard circumstances was exaggerated

Question 6

Why are results of wellbeing research counterintuitive?

Answer 6

People do not continuously think about their circumstances much, only with significant life changes there is more attention. After that they spend more time attending to experiences.

Question 7

What is the relationship between life satisfaction and household income?

Answer 7

The correlation ranges from 0.10-0.30, with incomes over 90,000$ being twice as likely to report being very hope than those below 20,000$. But there is little difference between the highest income group bracket and those between 50,000 to 90,000 bracket.

Question 8

Why is the correlation between income and judgements overstated?

Answer 8

1. increases in income have a transitory effect on reported life satisfaction
2. large increases in income for a country over time are not associated with increases in average wellbeing
3. life satisfaction tends to rise with GDP per capita at low levels of income, but there is no increase in satisfaction once GDP exceeds 12,000
4. when asking in real time about their feelings of each episode, income is more weakly correlated with experienced feelings than with overall happiness

Question 9

What did the Cornell Worksite Blood Pressure study find?

Answer 9

Asked about feelings every 25 mins during a workday. The correlation between personal income and average happiness rating was just 0.01 while family income was significantly positively correlated with anger, anxious/tension and excitement. Linked to more intense negatively experienced emotions and arousal

Question 10

Why does income have a weak effect on subjective wellbeing?

Answer 10

1. relative income rather than absolute level of income affects wellbeing. With more wealth, average rank does not change and explains why does not correlate with moment-to-moment ratings of affect
2. individuals adapt to material goods resulting in less joy-> hedonic adaptation
3. as income rises, time use does not shift towards activities related to improved affect as they devote more time to work, childcare, active leisure and less time to passive leisure activities -> higher tension and stress. Likely increases satisfaction + accomplishment but not experienced happiness

Question 11

Money

Answer 11

A distinct entity, particular economic concept

Question 12

What is behaving self-sufficiently?

Answer 12

An insulated state where people put effort to attain personal goals and prefer to be separate from others

Question 13

Theory on Money Lea and Webley

Answer 13

Characterizes money as a tool and a drug which emphasizes that people value money for its instrumentality. Money enables people to achieve goals without aid from others. So reminders of money leads to changes in behaviour that suggests self-sufficiency.

Question 14

What was experiment 1?

Answer 14

Participants were randomly assigned to play money, money prime or a control. Involved a descrambling task, with some priming money or neutral phrases, play money had a stack of Monopoly money in peripheral vision. Then were given a difficult but solvable problem. Participants who were reminded of money worker longer than controls before requesting help

Question 15

What was experiment 2?

Answer 15

Participants were assigned btw two manipulations, one activating the idea of abundance of money (high) and restricted amount of money (low). Then read aloud an easy about growing up with abundant or little resources. Then had an impossible task before being able to ask for help from another peer. Participants in the high money condition worked longer than those in the low money condition before asking for help.

Question 16

What was experiment 3 and 4?

Answer 16

After being primed with money compared to neutral stimuli, it was found that participants helped less than those in the control condition, so they offered less help.
Another study found the same results, those with money spent half as much time helping the confused confederate. This is because they believed that the confederate should figure out on her own to perform the task self-sufficiently.

Question 17

What did experiment 5 find?

Answer 17

Participants first played Monopoly. They either had lots of money at the end or less money, then were asked to imagine a future with abundant or strained finances. Then there was a staged accident with helping to pick up pencils. Those in the high money conditions gathered less pencils than in the low money condition.

Question 18

What did experiment 6 find?

Answer 18

Participants descrambled phases that primed money or neutral concepts, then gave a false debriefing and mentioned taking donations. Participants primed with money donated less than those not primed with money

Question 19

What did the final experiments find on social intimacy, desire to engage in leisure activities and preference to work alone?

Answer 19

1. participants saw either a currency screensaver, fish or blank screen. They were asked to move two chairs together, there was more distance btw them when primed with money
2. participants faced different posters and then were asked to choose between two activities. Those primed with money were more likely to choose individual focussed activities
3. participants primed with money were asked whether they wanted to work alone or with another person. They were more likely to work alone when primed with money

Question 20

What are the pros of financial incentives?

Answer 20

• most potent influence on employee performance
• can convey symbolic meaning like recognition + status beyond monetary values
• easy to match differences in products to differences in wage rates, reducing costs

Question 21

What are the cons of financial incentives?

Answer 21

• detrimental effects of money on intrinsic motivation-> controls behaviour externally, reducing self-determination + intrinsic motivation
• encourage people to focus narrowly on tasks, quickly and to take few risks

Question 22

What are the main theoretical frameworks looking at the relationship btw money and performance?

Answer 22

Expectancy theory suggests that tying financial incentives to performance increases extrinsic motivation, to improve effort and performance.
Reinforcement theory suggests tying financial incentives to performance reinforces performance
Goal-setting theory indicates that financial incentives increase acceptance of difficult performance goals
Cognitive-evaluation theory: FI erode intrinsic motivation and diminish task performance
Equity theory: motivated to reduce inequity but unclear, under certain conditions deviations from fairness can reduce the link of FI to performance

Question 23

What did Jenkins et al find in his previous review?

Answer 23

Positive effects of financial incentives on performance quantity but a similar effect was absent for performance quality

Question 24

What variables were looked at in this meta-analysis?

Answer 24

Setting task type (less cognitive ones) and theoretical frameworks as moderators. Setting was distinguished between lab experiment, experimental simulation or field experiment. Task type: intrinsic or extrinsic. Theoretical frameworks was coded as expectancy-reinforcement, goal setting and cognitive evaluation
They identified studies using computerized database searches, manual searches and examinations of the reference lists in Jenkins et al

Question 25

What did the results find?

Answer 25

The relationship of financial incentives and performance quality is not significantly different from 0. Sampling and measurement error explain 100% of the observed variance across studies. The setting moderated the financial incentives-performance relationship (higher for lab and field experiments). Task type did not moderate the relationship between IF and performance. Correlation was highest for the expectancy-reinforcement. The relationship of FI with performance quantity is significant (effect size= 0.34)

Question 26

What are the conclusions of this research?

Answer 26

- greater credibility to expectancy, reinforcement and goal-setting - FI do not affect performance quality - strongest relationships in simulations then field and lab - expectancy and reinforcement made a clear tie btw performance and FI-> theoretical frameworks moderated - rewards erode intrinsic motivation under certain conditions - study did not consider incentive size + interdependencies among employees may affect performance or size

Question 27

Why would there be a positive relationship between pay level and job satisfaction?

Answer 27

Pay satisfaction is important for overall job satisfaction. Integrative model predicts that role outcomes like pay will result in high levels of job satisfaction. Lawler's discrepancy model is that pay satisfaction is a function of what one receives relative to what one thinks one should receive-> pay level should be satisfying.

Question 28

Why would there be a negative relationship btw pay level and job satisfaction?

Answer 28

Self-determination theory argues that extrinsic rewards are demotivating and dissatisfying as they have a negative effect on intrinsic interest-> reduces autonomy. It interferes with the fulfilment of needs like self-acceptance or affiliation

Question 29

What are the research questions of Judge et al?

Answer 29

Q-1: At the individual level, is pay level related to: (a) pay satisfaction or (b) overall job satisfaction? Q-2: At the organization/sample level, are average levels of pay level related to: (a) pay satisfaction or (b) overall job satisfaction? Q-3 Do the following factors moderate the relationship between pay level and job satisfaction or pay level and pay satisfaction: (a) U. S. vs. international samples; (b) publication source (published vs. unpublished, and quality of publication outlet); (c) measure of job or pay satisfaction; (d) common vs. independent sources of data; and (e) measure of pay?

Question 30

What were the results of Judge et al?

Answer 30

- Pay level shows a weak positive correlation with job satisfaction (ρ̂ = .15) and a somewhat stronger correlation with pay satisfaction (ρ̂ = .23) - The relationship between pay level and pay satisfaction is notably stronger than its relationship with overall job satisfaction - pay level-job satisfaction + pay satisfaction is lower for US compared to other countries but not significantly different - studies using MSQ yielded a higher correlation btw pay level and job satisfaction - small difference in published and unpublished studies but nonsignificant - mean pay = 64, 119$ percent of pay satisfaction max = 65%, percent of job satisfaction scale max = 76% - the average level of job satisfaction remained stable across studies regardless of the change in mean pay level - pay and job satisfaction results were similar

Question 31

Percent of scale max

Answer 31

dividing the reported satisfaction score (mean or cumulative) by the calculated scale maximum

Question 32

Adaptation level theory

Answer 32

judgements of experience are relative to a reference point that shifts with past experiences and current background stimuli. Involves people adapting very quickly to social events

Question 33

Implications of Judge et al?

Answer 33

Other job attributes should be weighed more heavily than pay. Even though pay is not as satisfying, can still be motivating. Income is satisfying only so far as it is higher than others-> high pay dispersion in organization. If the underlying pursuit of money was controlled then the importance placed on money is unrelated to wellbeing.

Question 34

Hedonic leveling

Answer 34

This is equalizing individuals' wellbeing. So for those whose lives are going well then positive events are less likely to affect them as they have less to gain. But those whose lives are going poorly have more to gain from positive events.

Question 35

What are the dimensions of pay for performance programs? Gerhart et al

Answer 35

- emphasis on results like sales profits, shareholder return (more likely for sales, executives) - behaviour-oriented performance - emphasis on performance measured at the individual employee - degree of incentive intensity (more likely in higher level jobs or when results-based measures are available)

Question 36

Merit pay

Answer 36

Focus on subjective judgements of performance behaviours, less likely to be used for lower level positions

Question 37

Motivation-hygiene theory

Answer 37

Money is the hygiene category of this theory. It argues that money does not motivate and could demotivate, as it undermines intrinsic motivation and interest to perform a task or activity

Question 38

Why are there concerns with PFIP's fit with different situational contexts?

Answer 38

- does it fit in the new economy which has a focus on collaboration + cooperation? - sometimes PFIP does not have a strong enough relationship to be meaningful so incentive intensity is weak - incentive intensity can be too strong resulting in unwanted consequences - little PFIP evidence

Question 39

How much PFIP is there?

Answer 39

PFP is pervasive, around 92% use performance to determine salary increases. Incentive intensity usually involves 1-5% increase.

Question 40

Why is PFP defined too narrowly?

Answer 40

- consistently high performers receive consistently higher annual merit increases over time resulting in the relationship btw pay and performance being larger -> compounding effects - merit bonuses are being used more which account for more of the relationship - performance ratings influence promotions which is larger than typical merit increases - changing employers to increase pay - compensation for holding jobs - large relationship btw CEO pay and performance

Question 41

What are the positive effects of PFIP?

Answer 41

- incentive effects is the impact of PFP on current employees - sorting effect is a change in pay strategy that improves performance not by changing the behaviour of current employees, but by changing who the current employees are and their attributes - less productive workers quitting in response to the new incentives, were replaced by more productive workers over time (sorting effect)

Question 42

What are the limitations of PFIP?

Answer 42

- pay is not a motivator - PFIP harms intrinsic interest/motivation in work - can harm cooperation and teamwork - does not fit with many cultures - measures are not reliable and valid enough to use PFIP - can work too well as that drive can cause other objectives to be ignored or achieve through undesirable ways

Question 43

How can the idea that pay does not motivate be evaluated?

Answer 43

Lacks empirical support as pay is ranked high as one of the rewards most important to them-> largest focus of attention. Employees usually gravitate towards companies that have rewards that match their reward values/preferences, so data offers limited value

Question 44

How is PFIP a de-motivator?

Answer 44

- the more that a manager stress what an employee can earn for good work, the less interested the employee will be in the work itself - extrinsic rewards diminish intrinsic motivation

Question 45

Cognitive evaluation theory

Answer 45

The distinction is between intrinsic motivation (inherently interesting or enjoyable) and extrinsic motivation (doing something because it leads to a separable outcome). Intrinsic motivation is doing an activity in the absence of a reward contingency or control. Intrinsic interest is a key to IM as when people are intrinsically motivated they experience interest and enjoyment. Performance contingent rewards are controlling (reducing IM) and PFIP has an informational aspect which is likely to have a positive effect when performance is strong

Question 46

What aspects should be considered for motivation?

Answer 46

1. total motivation is important (both intrinsic and extrinsic) 2. there are many different contexts, and some measures like the free time measure does not make sense in a workplace setting 3. the use of children in CET tests as extrinsic rewards can be more detrimental 4. PFIP is more likely to have a positive impact on perceived self-competence and perceived autonomy rather than perceived control 5. sorting effects in employee reactions which differs in lab experiments which is random 6. extrinsic interests can improve creative performance

Question 47

Self-determination theory

Answer 47

when rewards are administered in an autonomy-supportive climate, they are less likely to undermine intrinsic motivation and, in some cases, can enhance intrinsic motivation

Question 48

Learned industriousness

Answer 48

focuses on the informational aspects of rewards that guide goal-directed behaviour and, thus, increase creative performance

Question 49

What was found in companies with stronger PFP?

Answer 49

The higher the PFP, the higher the levels of extrinsic motivation, tend to be higher performance, higher higher perceived competence and stay with the organization. They have internal work locus of control in the company which partly mediated the relationship btw company PFIP strength and intrinsic interest. Those that have lower performance and lower perceived competence are less likely to stay in the org.

Question 50

How to evaluate the claim that PFIP does not fit with teams?

Answer 50

- pay dispersion is not great when work is interdependent, as disadvantages dominate - equity theory does not say equal pay is seen as fair, as this could undermine motivation like social loafing + free-riding - even if low pay dispersion produces cooperation, team performance can be affected by sorting effects - low pay dispersion is only possible with a low pay level

Question 51

Equity theory

Answer 51

The effect of differences in pay between employee on behaviour depends on whether the pay dispersion is seen as equitable. This perception depends on whether differences in puts like performance exist and whether they are perceived as providing the basis for differences in outcomes. Reactions depend on whether dispersion is explained by performance inputs.

Question 52

How you can evaluate the claim that PFP does not fit many national cultures

Answer 52

- org should localize their practices to fit the national culture - country was found to be less important than initially thought - sorting effects should be considered in assessing the degree to which management practices will work in diff countries - country/national differences may be less of a contingency variable than expected - more collectivistic countries like China and Japan are less likely to use the equity rule (differentiating pay based on individual performance) than US - merit increases given to high vs average performers is higher in China than US

Question 53

What is the conclusion of PFP?

Answer 53

- unclear whether companies would fare better on average by diminishing the role of PFP - stronger incentive intensity -> substantial gains in performance-> unintended negative consequences - future research: implementation + survival of PFP, define, measure PFIP + consequences (merit pay has declined), unclear whether PFP demotivates and contextual variables in the use of PFIP