Understanding Motivation Theories and Compensation Strategies
Motivation Theory: Motivational Theory and Compensation
Reinforcement Theory: Comes from the field of psychology and holds that behavior is caused by chains of antecedents and consequents. Antecedents are factors in the environment that cue someone to engage in a specific behavior. Consequents are results associated with specific behaviors.
Goal-Setting Theory: Is grounded in cognitive psychology and holds that behavior is motivated by choices. Goals improve performance through four specific motivational processes:
- Goals focus attention away from other activities toward the desired behavior.
- Goals get people energized and excited about accomplishing something worthwhile.
- People work on tasks longer when they have specific goals.
- Goals encourage the discovery and use of knowledge.
Justice (or Equity) Theory: Motivation depends on beliefs about fairness. People compare their inputs and outcomes to the inputs and outcomes of others. Equity theory is an example of what is known as distributive justice. Distributive justice is concerned with the fairness of outcomes. In terms of compensation, distributive justice focuses on whether people believe the amount of pay they receive is fair.
Expectancy Theory: This theory proposes that motivation comes from three beliefs: valence, instrumentality, and expectancy.
Agency Theory: Developed in the 1970s, this theory focuses on the way management of a firm manages its relations and enters into contractual arrangements with its managers or employees. The conditions under which subordinate agents work with corporate managers may directly influence the behavior of the organization, such as taking risks related to new ventures.
Describing Pay Surveys and Their Use: How is compensation level determined?
- The Role of the Pay Survey: The pay survey provides information about how much other organizations are paying employees.
- Pay surveys are conducted by consulting firms, which obtain confidential pay information from numerous organizations and create reports that describe average pay levels in other organizations.
Pay-Level Strategies: There are three market strategies:
- Meet-the-market, which establishes pay that is in the middle of the pay range for the selected group of organizations.
- Lag-the-market, where an organization establishes a pay level that is lower than the average in the comparison group.
- Lead-the-market, where the average pay level is higher than the average in the comparison group.
Job-Based Pay and Skill-Based Pay Approaches: The pay structure focuses on how compensation differs for people working in the same organization:
- Job-Based Pay: Focuses on evaluating different tasks and duties associated with various jobs in the organization.
- Skill-Based Pay: Focuses on the difference in skill and ability required to perform the job.
Chapter 12: Designing Compensation and Benefit Packages
Basic Elements of a Compensation Package: Compensation packages are the blend of rewards.
- Money paid as wages or salary is the largest component of most compensation packages.
- Benefits and (short and long term) rewards make up the rest of the package.
Two Issues:
- At-Risk Compensation: This is compensation that can vary from period to period. The money is at risk because the employee will not earn it unless performance objectives are met.
- The Line of Sight: This is the extent to which employees can see that their actions influence the outcomes. It is used to determine whether they receive a particular reward.
Different Features of Base Pay and Employee Benefit Plans: Main elements of compensation packages, NOT A RISK:
- Base Pay: A form of compensation that is not a risk (hourly wage or an annual salary).
- Employee Benefits: Rewards other than monetary salary and wages.