Analysis of Extrinsic Incentives in Pdm Division

Analysis of Extrinsic Incentives in PDM Division

Name: Shijing Liu

There are six reasons why extrinsic incentives are not effective motivator. Some of VDS's problems are related to these six reasons.

The first reason is that pay is not motivator. Usually, it doesn’t necessarily follow that doubling that person’s pay would result in better work. VDS management have not done very well in this part. In VDS, everyone owns equity in the company. Management believed that equity was an effective motivator that would inspire employees to work together towards a common goal. However, most employees greatly underestimated the worth of their shares, often giving the option exercise price when asked what they thought their shares were worth. It turns out that this equity policy does not become a big effective motivator.

The second reason is rewards punish. Usually, by making the bonus contingent on certain behaviors, managers manipulate their subordinates, and that experience of being controlled is likely to assume a punitive quality over time. VDS has done very well in this part. In the VDS, it has monthly bonus plan, quarterly bonus plan and annually bonus plan. This specific system of bonus plan makes everyone understands how much reward one can expect. In this way, employees gain more motivation to work harder.

The third reason is that reward rupture relationships. The surest way to destroy cooperation and, therefore, organizational excellence, is to force people to compete for rewards or recognition or to rank them against each other. In VDS, each of the founder served in a distinct role at VDS, so having a thorough understanding of their common goals was necessary to coordinate their decisions. Everyone within a job type earned almost the same base salary. Even though our total compensation is high

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