Motivating Employees during Economic Downturn ( student's work)

AH, AH, & SMK , Jan 9th 2012 - Field work was excluded from this paper


Executive summary

The recent economic turbulences have drastically changed the jobs of managers. With the hectic economic conditions, the role of mangers as planners, leaders, organizers and controllers has become imperative and integral for the firm’s survival. Motivation during recessions has become a tougher task with the competition for scarce resources. Several methods have been assessed to motivate employees on a non-monetary basis, while focusing on the psychological aspect to the topic at hand. Two comparative studies have been supplied to test these theories as well as the impact of the recession and mergers and acquisitions on employee morale.

Table of Content

1.Introduction:4

2. Literature Review:5

2.1 Employee Motivation as a Key Function of Management:5

2.2 The Psychological Aspect of Motivation:5

2.2.1 Thorndike’s Law of Effect:6

2.2.2 The Link between BAS, BIS and Motivation:6

2.3 Highlights on the 2008 Economic Recession:7

2.4 Motivation through Non-Monetary Practices:8

2.4.1 Motivation through Bridging the Communication Gaps:9

2.4.2 Targeting Motivation through the Need for Affiliation and Recognition:11

2.5 Case Studies from the Banking Sector12

3. Conclusion of the Paper18

4 References. 22


1. Introduction:

There is no doubt that today’s business world is not as easy going and stable as the ones previous generations of managers had to deal with decades ago. As seen by anyone who takes a closer look at the global economy, the financial crisis has left its marks on multi-national as well as local companies around the world. Starting with national governments having to bailout banks, to the sudden drop in stock trading, the drastic increase in the rate of unemployment, and the declaration of bankruptcy of several profound companies, we comprehend that management is up against a tide of contingencies which it has to plan, lead, organize, and control in effective and innovative ways.

We have been told while growing up that “desperate times require desperate measures”. Indeed the previous comment is correct. Taking a closer look at the contracting world-wide economy; it is the responsibility of management to lead the company and employees out of the crisis and into a new era by which the company attains sustainable growth (Emmerich, 2001). Hence, the need to use resources in an efficient and effective manner has become an imperative condition for the survival of an organization. Undeniably, with the scarcity of resources, employee morale suffering, as well as the volatile nature of the economy, managers have to tap into the potential of existing resources and transform those prospects into reality. The research at hand discusses the above theme by tackling the concepts of motivating employees during economic downturns. It is based on the belief that investing in existing human resources will result in higher future returns in the short and long run and help build and sustain competitive advantage as employees grow in symbiosis within the organization.

2. Literature Review:

2.1 Employee Motivation as a Key Function of Management:

During challenging and ordinary times in order to keep your employee talents and decrease the turnover rate, employees should be satisfied, productive, and focused on their work. That’s why motivation is a key factor in maintaining a healthy organization that aims to survive in the volatile nature of our world economy. Although this task may appear challenging, it could be accomplished through the theory of “the new 3R’s” recognition, rewards, and recession (Sullivan, 2009).

As starters, mangers should keep in mind not to de-motivate employees especially during economic downturns, since research has shown that employees usually are willing to do their best at their jobs yet fail due to several factors that hinder their effort and hence, de-motivated in the long run. Hence, it is management’s responsibility to identify, eradicate, or limit the effect of these factors on employee morale and performance (Sullivan, 2009).

Second managers should transfer optimism to employees especially during recessions since employees during these periods lose confidence in themselves as well as in the organization. Based on that previous concept, companies should train their employees in order to increase their confidence and make them more productive (Sullivan, 2009). Since employees don’t like to be kept in the dark especially during ambiguous times, thoughtful and constructive feedback is needed to communicate to employees their position within the organization’s short and long term plans. Also, managers should be flexible with their employees and frequently provide small raises; this could be a good motivator for employees especially with younger ones (Sullivan, 2009). Due to the fact that employees are the organization’s most important asset, management is held accountable to look out for the welfare of employees especially during economic downturns when resources are scarce and have to be allocated on different departments. Therefore, according to Sullivan (2009) “employee recognition and motivation is a practice, not a program”.

2.2 The Psychological Aspect of Motivation:

On a psychological level, several theories have dealt with motivation trying to explain its nature and how it differs from person to person. In the following section we focus on Thorndike’s law of effect, behavior activation systems and inhibition systems and their effect on individual motivation.

2.2.1 Thorndike’s Law of Effect:

Thorndike’s law of effect suggests that behavior is affected by the consequences that follow it (reinforcement or punishment). Basically, the law states that a particular behavior is more likely to happen if it is coined with a positive or satisfying consequence, whereas the converse is true (Passer, 2010). For instance, if an employee suggests new methods to improve the company’s business and his/her suggestions are met with openness and consideration from managers, then employees are more likely to sound their opinions in the future. Such concepts might be applied when trying to motivate employees during recessions. Simple words of encouragement, praise, and tokens of appreciation may help boost morale as they reinforce desired behavior by coining them with reinforcements.

In operant conditioning, where learning and behavior are influenced by the consequences of actions performed, motivating employees can be achieved through two types of reinforcement. Passer (2010) differentiates between positive and negative reinforcement. In the first scenario, a behavior is reinforced or strengthened when it is presented with a stimulus of favorable nature which urges people to repeat the behavior. This is applicable when management offers employees fringe benefits, monetary rewards, and moral support among other stimuli. On the other hand, negative reinforcement occurs when a behavior is strengthened by eliminating sources of discomfort, pain, stress or worry (Passer, 2010). For instance, to negatively reinforce employees, managers may try to decrease the amount of pressure employees are subjected to by offering a more flexible working-hour schedule, a warmer and more understanding environment, and other stress relievers. Therefore, eliminating sources of stress and other de-motivating factors will negatively reinforce employee behavior.

2.2.2 The Link between BAS, BIS and Motivation:

Michael Passer in his book “Psychology: The science of the Mind and Behavior” accounts for two neural sub-systems related to pleasure-seeking and pain-avoidance. The neural systems affect the motivation and willingness of employees to explore unfamiliar territories. Passer refers to them as the Behavior Activation System (BAS) and the Behavior Inhibition Systems (BIS) respectively. He suggests that people with a highly stimulated BAS system are people who are highly inclined to increase their movement towards a goal that is expected to yield positive reinforcements, rewards, achievement and pleasure. Whereas people with a highly active BIS system respond to a stimulus with potential pain or punishment, and hence, exhibit fear and inhibition of behavior.

One of the major differences between BAS and BIS people is that the initial are more likely to explore new fields since BAS induces emotions of “hope, elation and happiness” (Passer, 2010). Whereas people with active BIS are more likely to feel comfortable in routine situations, and hence they tend to remain in conditions they are accustomed to; to avoid failure and future punishment.

Understanding what type of motivation system (approach or avoidance) employees have dictates how employees will react to the stress accompanied by economic downturns. If employees have an active BAS then they are more likely to take the economic problems as a challenge and hence, management must capitalize on that aspect by giving them the autonomy to suggest different ways to increase efficiency and exploit the recession to their benefit. Monetary and non-monetary motivation might help in the process. On the other hand, if employees have a very active BIS, then management should also incorporate a “No-punishment” messages with their motivation and hence, continuous positive reinforcement is needed to ensure that employees are pushed to explore new territories.

2.3 Highlights on the 2008 Economic Recession:

The great recession is the economic downturn that started in December 2007, peaked in September 2008, and continued into 2010. Studies have described it to be the strongest since the 1930 great economic recession. In this recent recession, many financial crises have occurred affecting the global economy, yet it has various levels of ripples on some countries while excluding others. (Hurd & Rohwedder, 2010).

Some attribute the recession to the investment in bad mortgages by the most important and major banks in the United States and Europe. Yet, the financial crises wasn’t limited to Europe and the U.S.; it terribly spread throughout the whole world affecting the economy of other countries, since many businesses conduct their activities on global levels. (Hurd & Rohwedder, 2010). In addition, the great recession had terrible impacts on many businesses and organizations, in which some businesses have shutdown since they went bankrupt and others tried to save some of their costs by laying-off some of their employees. For instance, Hurd & Rohwedder (2010) suggest that the unemployment in the United States increased from 4.7% (pre-recession) to 7.4 % at the end of 2008. Moreover the housing and stock prices decreased during this period and by October 2008 it dropped by 37% and precisely in October 2008 alone it dropped by 17% (Hurd & Rohwedder, 2010). On the other hand many organizations had overcome this recession by reducing employees’ wages, and still others tried to motivate their employees during the recession in order to sustain their good performance and tried to reduce the impacts of the recession on them (Hurd & Rohwedder, 2010).

2.4 Motivation through Non-Monetary Practices:

One of the articles we base our study on is “Motivating Employees during Downtimes” which was published by Liz Thach in 2002. In her article, Thach identifies that employees are fearful when facing uncertainties. This fear affects their motivation which as a result has various ripples on their performance (Thach, 2002). Based on the proposed argument, the author asserts the importance of keeping employees motivated on a regular basis, during normal economic conditions as well as during recessions. Yet, she emphasizes the importance of motivation during the latter condition since HR is the best resource to invest in during such conditions to get the organization through the rough patch, i.e. economic decline.

Based on the previous assertion, Thach (2002) stresses the importance of rewarding employees’ achievements, no matter how trivial, on a regular basis. The text suggests that motivation and rewards can go far beyond monetary aspects: “Novel approaches that go beyond cash rewards, stock options or other benefits packages are used by many companies to keep employees engaged during an economic downturn, and both managers and employees can take measures to breathe creativity, humanity and productivity back into the workplace” (Thach, 2002). Hence, the need to motivate employees during economic downturns when resources are scarce, employees are being laid off, and morale is suffering can be a difficult and frustration-causing task when the manager is not creative in his/her motivational plans while keeping the budget in mind.

Based on the previous presentation, the sections below represent several non-costly methods, which are used to motivate employees and increase efficiency and productivity without having to make significant resource sacrifices.

2.4.1 Motivation through Bridging the Communication Gaps:

During economic downturns when most employees are obsessing about the idea of getting laid off, good communication, if used properly, can build a more motivated workforce. It can be a stress reliever and a motivation tool employed to eliminate negative energy, build a more long term oriented outlook towards the future, and equip the organization with the tools to survive the economic downturns. In a recent article entitled “Planning Ahead: Packed Diaries” Tom Washington states that the recent economic situation dictates the need for better communication between management and non-managerial employees. Washington quotes Fraser Smart, regional director at Buck Consultants, when he says, “It has been a really tough year, but employers need to spend more money communicating with employees […] Staff need open and honest updates, even when times are challenging. Honesty breeds less fear and if you do not have that level of trust with staff, people start to get worried, and even suspicious, [which] leads to discontent" (Washington, 2008). Smart also refers to the negative influence lack of communication has on employee morale and motivation and suggests that one of the methods to address employee fear and uncertainty is to utilize communication to stretch management’s goals, ideas, fears as well as reassurance to the working force (Washington, 2008).

In her article, Thach highlights the importance of communication between managers and employees through two methods that link to the psychological aspect of the human nature. She points out humans’ desire to have sense of control over their lives especially during situations of uncertainty such as recessions (Thach, 2002). Based on her assumption, she suggests giving employees a voice of their own to bridge the gap between managerial and non-managerial employees. The first suggestion offered in her text concerns what she calls “Attack Teams”. In simple terms, first-line, middle and non-managerial employees are given the freedom to develop and suggest methods to increase the efficiency and effectiveness of organizational procedures. Attack teams focus on tackling non-routine problems created by the recession to increase return on capital, return on assets (ROA), and contribution margin (Cm), and decrease employee turnover rate. For example, Thach refers to a company in Louisiana that adopted one of its employee’s suggestions by selling disassembled inventory to clients; which earned them revenues that wouldn’t have been made had it not adopted that suggestion (Thach, 2002). By doing so, top management communicates to the various fractions of the organization the significance of human resources as well as gives them a sense of worth, autonomy and control.

Another method explored in our management book and restated in Thach’s article is the concept of management by objective (MBO). Although MBO is an integral concept in management, the author asserts the importance of the notion during economic downturns. Thach argues that during such situations, letting first-line, middle and non-managerial employees have a role in the decision making process leads to efficient results since these employees are in direct contact with the market and are exposed to the effects of the economic condition more severely when compared to higher management level. This also fosters creativity and enthusiasm by allowing employees to share their visions, aspirations, as well as methods to attain sustainable growth in symbiosis with the company.

In addition, formal and informal discussions with coworkers can help relieve stress, build a positive working environment as well as boost morale. This method focuses on finding the silver lining in each unfortunate event. Thach gives the example of mangers stressing the fact that recessions can create a window of opportunity where management can be open to new suggestions that may lead the company to a new era of achievement. An example supplied in the previous article includes coffee and table talks that are used to explore employees’ thoughts, concerns and suggestions in a very warm and friendly way. The mangers sit on the same table as their employees; this gives out the impression of equality and interest. Additionally, managers listen to employee concerns and try to communicate in an informal way the need to think about the long run without restricting the management plans to the present economic situations keeping in mind the current situation. Also, informal coffee chats can be used to reduce negative grapevine talk regarding bankruptcy, layoffs as well as fallacious rumors about mergers and acquisitions by other organizations. Other companies offer tokens and non-costly objects to their employees working on important projects or deals. These tokens are representation of management’s belief and appreciation in their efforts. All in all, these non-monetary methods of motivation seek to build spirit within the organization and shed light on the silver lining of any unfortunate event.

On the other hand, companies tend to offer amenities to ensure their employees’ welfare. Some companies present little boxes in the corridors that contain stress relievers such as aspirin, Panadol, and other relaxants to communicate the idea that the organization values their effort as well as understands the pressure they are being subjected to (Thach, 2002). Other companies distribute stress balls to their employees to help them channel their stress into something other than their co-workers. Although the idea might sound trivial, during economic downturns, such gestures might help boost morale as it acts as good medium for communication between employees and top management and builds a sense of communal welfare (Thach, 2002).

2.4.2 Targeting Motivation through the Need for Affiliation and Recognition:

Looking back at Maslow’s pyramid of needs, managers aiming to motivate employees can target both the safety and social needs. Based on this argument, managers may focus on building a sense of affiliation and recognition to create a motivated workforce.

Managers seeking to motivate their employees may focus on the need for recognition especially for employees who have intrinsic needs for success and growth. Intrinsically motivated individuals engage in certain actions for self-satisfaction, growth and self-attainment, whereas extrinsically motivated employees are those who engage in activities for external benefits such as monetary rewards and recognition by others. Hence, by distinguishing between intrinsically and extrinsically motivated employees, employers and managers can utilize the need for recognition and affiliation on different levels based on the employee’s psychological level. In general, non-monetary motivation techniques fit intrinsically motivated employees more. For instance, intrinsically motivated employees who succeed in their tasks can be thanked and praised in the open thus giving them a sense of recognition. Recognizing an employee doesn’t have to be restricted to major achievements. In fact, positive reinforcement along the course of action is essential. Yet, this doesn’t mean that employees who fail are judged and compared to employees who have succeeded. On the other hand, management should make an attempt to offer more support and motivating words to other employees by stressing on the importance of their effort as well as giving them constructive feedback. It is also important to remember that constructive feedback begins with identifying the points of strength in an employee’s performance then isolating the areas that need development, and not the other way around.

Targeting the need for affiliation can be done through engaging in humanitarian work. This builds team spirit and strengthens the bond between employees. Also, charity sheds light on the unfortunate fractions of the society which may help some employees regard their situation from a different perspective. Also, group work outside the job description may help employees explore the strengths, inclinations, talents, as well as weaknesses of their co-workers. Hence, this builds better understanding for other co-workers and bridges the communication gap between different employee levels. Humanitarian work doesn’t have to associate with costly implementations. Several companies have adopted charity work, donation of food, and clothing among others.

Although many might argue that these methods are too optimistic and unrealistic, sometimes these methods are needed when morale is suffering and employees see their colleagues and co-workers losing their jobs. Indeed, such trivial matters might communicate to employees that the organization is not constricted by profit and values its employee satisfaction.

2.5 Case Studies from the Banking Sector

Of practical relevance to the banking sector in a developing country like Lebanon, there are two case studies which outline what motivates employees in the banking sector in developing countries. Both case studies emphasized the importance of motivation during economic recession. The same methodology was used in both case studies in order to derive conclusions that would be of use to managers in the banking sector of a developing country during the economic recession.

The first case study took place in Greece and was conducted by Nikolaos Kakkos and Panagiotis Trivellas (2011). The findings of the case study were presented in 2011 at the 8th International Conference on Enterprise Systems, Accounting and Logistics. The purpose of the case study was to help banking managers maximize their human capital so as to maximize competitive advantage during the economic recession (Kakkos & Trivellas, 2011, p. 408). The case study distributed surveys to five branches of a public bank and five branches of a private bank and surveyed employees of different positions, gender, and age (Kakkos & Trivellas, 2011, pp. 419-420). The survey was designed to measure “employee perceived job performance” as a function of: multiple needs satisfaction, work stress, gender, age, bank type, work experience, position, and income. Because the case study measures the effect of multiple needs’ satisfaction, the case study is based Alderfer’s Theory of Motivation (Kakkos & Trivellas, 2011, p. 408). Alderfer’s Theory of Motivation is a content theory because it focuses on the role of the manager in determining and satisfying the needs of the manager’s employees (Kakkos & Trivellas, 2011, p. 411). The theory is also known as “Alderfer’s Modified Hierarchy of Needs” because it is based on Maslow’s Need-Hierarchy Theory. In Alderfer’s Modified Hierarchy of Needs, physiological and safety needs constitute the first level, which is the “Existence Needs.” Social and esteem needs constitute the second level, which is the “Relatedness Needs.” Self-actualization and self-esteem needs constitute the third level, which is the “Growth Needs” (Kakkos & Trivellas, 2011, p. 412). Unlike Maslow’s, this theory allows for simultaneous needs. Like Maslow’s, the frustration-regression principle is applicable to the hierarchy (Kakkos & Trivellas, 2011, p. 413). In the banking sector, existence needs are pay and fringe benefits, relatedness needs are recognition by and relationships with peers and supervisors, and growth needs are opportunities to develop skills, to contribute creatively, and to take initiative (Kakkos & Trivellas, 2011, p. 408). Among the multiple needs, the case study found that only growth needs were significantly positively correlated with job performance; existence and relatedness needs showed no significant correlation. Additionally, gender, age, bank type, work experience, position, and income showed no significant correlation. However, stress was significantly negatively correlated with job performance (Kakkos && Trivellas, 2011, p. 422). The case study gives the following recommendation for managers in the banking sector: in order to maintain a competitive advantage through the economic recession, motivate your employees by trying to meet their growth needs and improve employee performance by trying to reduce stress (Kakkos & Trivellas, 2011, p. 424).

The second case study took place in Pakistan and was conducted by Muhammad Naveed, Muhammad Naeem Hanif, and Shahid Ali (2011, p. 353). The findings of the case study were presented in 2011 at the 3rd International Conference on Information and Financial Engineering. Because maintaining competitive advantage during an economic recession may result in banks merging or banks acquiring other banks, the purpose of this case study was to determine the effect of mergers and acquisitions (M&A) on employee perceived motivation and security (Naveed et al., 2011, p. 353). Surveys were distributed to middle and top management. The survey was designed to measure employee motivation and security as a function of employees with “pre and post M&A experience” and employees with only “post M&A experience” (Naveed et al., 2011, pp. 355-356). The study found that employees who worked before and after M&A were less motivated and less secure than those who only worked after M&A (Naveed et al., 2011, 357).

4. Conclusion of the Paper

From this field project, we can make the following conclusive statements: (1) whereas employees in the banking sector in Greece are motivated by growth needs only, employees in the banking sector in Lebanon require individualized motivators based on their needs and (2) employees in the banking sector in Lebanon have pre and post M&A experience because they witnessed the lay-offs incurred by the SGBL’s acquisition of the Lebanese Canadian Bank and resultantly, M&A is viewed negatively by employees. The finding of particular importance is the difference between motivators used between developed and developing economies. Employees in the banking sector of a developed country like Greece have satisfied their existence and relationship needs so these needs cannot be used as motivators. However, in Lebanon, managers deal with a more dynamic workforce with reference to their needs, i.e. managers must individualize motivators for their employees. Based on our findings, we can make the following suggestions for managers in the banking sector in Lebanon who need to motivate their employees during the global economic recession: (1) determine the needs of each employee and use their needs as a motivator and (2) if a M&A is possible or imminent, talk to your employees and try to alleviate their fears about their perceived job insecurity.


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