Objective is to analyze pay as an employee motivator. How might one answer the Questions associated with the following Case Incidents. How and what does one utilize as an external resource to strengthen the argument (meaning \ at least 3 additional references for each case, 7 total).

1. Chapter 7, Case Incident 1 - The Demotivation of CEO Pay

O LIVE Motivation Concepts CHAPTER 7 237 Questions 7-13. What do you think is the ideal ratio? Why might 7-15. The study found that participants thought the ideal vary from country to country? performance should be essential or very important 7-14. How does the executive compensation issue relate in deciding pay. What might be the positive motiva- to equity theory? How should we determine what is tional consequences for average employees if CEO a "fair" level of pay for top executives? pay is tied to performance? Sources: J. Ewing, "Swiss Voters Decisively Reject a Measure to Put Limits on Executive Pay," The New York Times, November 24, 2013, http://www.nytimes.com/2013/11/25/business/swiss-reject- measure-to-curb-executive-pay.html?_r=0; C. Isidore, "Gravity Payments CEO Takes 90% Pay Cut to Give Workers Huge Raise," CNN Money, April 15, 2015, http://money.cnn.com/2015/04/14ews/ companies/ceo-pay-cuts-pay-increases/; S. Kiatpongsan and M. I. Norton, "How Much (More) Should CEOs Make? A Universal Desire for More Equal Pay," Perspectives on Psychological Science 9, no. 6 (2014): 587-93; A. Kleinman, "Mark Zuckerberg $1 Salary Puts Him in Elite Group of $1 CEOs," The Huffing- ton Post, April 29, 2018, www.huffingtonpost.com; and G. Morgenson, "If Shareholders Say 'Enough Already," the Board May Listen," The New York Times, April 6, 2013, www.newyorktimes.com.LIVE four times a year to supplement its biannual raise structure maintaining pay equity adds another level of difficulty as part of a review of employee concerns. "You can resolve Frequent pay reviews are motivating, but only for the problemis early versus letting them fester," he said. An- people receiving them-for the others, it's a struggle to other reason is to increase feedback. Phone app designer stay engaged. If a person has a track record of raises and Solstice Mobile gives promotions and salary increases six then pay levels off, it can feel like a loss of identity as a times a year: with this structure, Kelly O'Reagan climbed strong performer rather than a natural consequence of from $10/hour to $47.50/hour in 4 years. The company's achieving a higher level of pay. The frustration can lead CEO. John Schwan, said that young workers are especially to lower performance and increased turnover for high motivated by the near constant feedback. O'Reagan said. performers. CEO Schwan acknowledged, "It's definitely "Seeing that increase was like, 'Wow, this is quite different a risk." than what I had ever dreamed of." You might be wondering how organizations can keep Questions the dollar increases to employees flowing. Organizations 8-17. Do you think frequent, small raises versus annual, are wondering, too. One tactic is to start employees at a larger raises is more motivating? Why or why not low pay rate. Ensilon, a marketing services company, has 8-18. Do you think you would personally be more mob- coupled low starting salaries with twice-yearly salary re- vated by more frequent raises or by performance views. Initial job candidates are skeptical, but most of the bonuses if the annual amounts were the same? new hires earn at least 20 percent more after 2 years than 8-19. Annual pay raises in the United States are they would with a typical annual raise structure. expected to be around 3 percent in the next few No one is saying frequent pay raises are cheap, or years. Do you think this percentage is motivating to easy to administrate. Pay itself is a complex issue, and employees? Why or why not? Sources. R. Feintzeig. "When the Annual Raise Isn't Enough," The Wall Street Journal July 16, 2014. BI, B5:J C. Marr and S. That. "Falling from Great (and Not So-Great Heights. How Initial Status Position Influences Performance after Status Loss," Academy of Management Journal 57. no. 1 (2014) 223-18 and "Pay Equity & Discrimination, " IWPR http://www.isprong/initiatives/parequity-and discrimination.O LIVE E INCIDENT 2 Pay Raises Every Day How do you feel when you get a raise? Happy? Rewarded? about 5 percent of organizations give raises more than Motivated to work harder for that next raise? The hope annually, but some larger employers like discount web- of an increase in pay, followed by a raise, can increase site retailer Zulily, Inc., assess pay quarterly. Zulily CEO employee motivation. However, the effect may not last. In Darrell Cavens would like to do so even more frequently. fact, the "warm fuzzies" from a raise last less than a month, "If it wasn't a big burden, you'd almost want to work on it according to a recent study. If raises are distributed annu- on a weekly basis," he said. That's because raises increase ally, performance motivation can dip for many months in employee focus, happiness, engagement, and retention. between evaluations. CEO Jeffrey Housenbold of online photo publisher Some organizations have tried to keep the motivation Shutterfly, Inc., also advocates frequent pay assessments, going by increasing the frequency of raises. Currently, only but for a different reason. The company gives bonusesLIVE CASE INCIDENT 1 The Demotivation of CEO Pay Quick: How much did your CEO get paid this year? How does this affect the average worker's motivation? It What did any CEO get paid? You may not know the exact appears that the less a person earns, the less satisfied the amounts, but you probably think the answer is, "Too person is with the pay gap. Yet virtually everyone in the much money." According to research from 40 countries study wanted greater equality. The ideal ratio, they indicat- that probed the thoughts of CEOs, cabinet ministers, and ed, should be between 5:1 and 4:1, whereas they thought it unskilled employees, we all think leaders should be paid was between 10:1 and 8:1. They believed skilled employees less. Beyond that, we are clueless. should earn more money than unskilled individuals, but Where we err can be calculated by an organization's that the gap between them should be smaller. pay ratio, or the ratio between CEO pay and average No one in the United States would likely think the 354:1 worker pay. In the United States, for example, the average ratio is going to dip to the ideal of 7:1 soon, although some S&P 500 CEO is paid 354 times what the lowest-ranking changes in that direction have been suggested. Other employee makes, for a ratio of 354:1 (eight times great- countries have tried to be more progressive, The Social er than in the 1950s). Yet, U.S. participants in the study Democratic Party in Switzerland proposed a ceiling for the estimated that the ratio between CEOs and unskilled ratio of 12:1, but putting a cap into law was considered too workers was only 30:1! Americans are not alone in mak- extreme by voters. No countries have yet been able to suc- ing this gross underestimate: Participants from Germany, cessfully impose a maximum ratio. for instance, estimated a ratio of around 18:1 when the Therefore, the job of restoring justice percep- actual is closer to 151:1. tions has fallen to CEOs themselves. Many CEOs, such In general, people worldwide are unhappy with-and as Mark Zuckerberg of Facebook and Larry Page of demotivated by-their perception of inequity, even when Google, have taken $1 annual salaries, though they their estimates of the ratios are far below the reality, Tak- still earn substantial compensation by exercising their ing the German example further, the ideal ratio of CEO stock options. In one extreme recent example, Gravity pay to unskilled workers as judged by study participants CEO Dan Price cut his salary by $1 million to $70,000, was around 7:1. To put it all together, then, people think using the money to give significant raises to the pay the ratio should be 7:1, believe it is 18:1, and don't real- ment processing firm's employees. Price said he expects ize it is actually 151:1. For all the countries worldwide to "see more of this." In addition, shareholders of some in the study, the estimated ratios were above the ideal companies, such as Verizon, are playing a greater role in ratios, meaning participants universally thought CEOs setting CEO compensation by reducing awards when the are overpaid. company underperforms