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Human Resource Management
Question 1 – Theories Of Remuneration
Vroom’s Expectancy Theory
The Three Influencing Factors
1.
Valence:
It refers to the strength of a person’s preference for receiving a reward, isunique to each employee and thus is a reflection of the concept of individual’sdifferences. Managers should determine what an individual employee’s preferences are, among a set of rewards. When a person prefers not attaining anoutcome, valence is a negative figure, and it goes without saying, that in thisinstance, the motivation is not at its highest level.2.
Expectancy:
It is the strength of belief that one’s work-related effort will result incompletion of a task. Expectancies are stated as probabilities. The employee’sestimate of the degree to which performance will be determined by the amount of effort extended. If individuals are efficient, they will believe that they have thenecessary capabilities to perform a task, fulfil role expectations, or meet achallenging situation successfully.3.
Instrumentality:
It represents the employee’s belief that a reward will be receivedonce the task is accomplished, based on the probability that the organization willvalue the employee’s performance and will administer rewards suitably. If anemployee sees that promotions are based on performance, instrumentality will berated high. A low estimate of instrumentality will be made if the employee fails tosee such linkages between performance and reward.The relationship between these three influencing factors is…
Valence
×
Expectancy
×
Instrumentality = Motivation
… where the combination that produces the strongest motivation, is high positive valence,high expectancy, and high instrumentality.The expectancy theory focuses on the link between rewards and behaviour. Motivation,according to the theory, is the product of valence, instrumentality and expectancy;therefore, remunerating systems differ according to their impact on these motivationalcomponents. Valence of pay outcomes remains the same under different pay systems.Expectancy perceptions often have more to do with job design and training than paysystems. Generally speaking, pay systems differ most in their impact on instrumentality – the perceived link between behaviour and pay.
 Skinner’s Reinforcement Theory
Employees’ behaviour and the amount of effort they allocate to the various jobs, is verymuch a consequence of reinforcement.
Positive Reinforcement
 provides a favourable consequence that encourages repetition of  behaviour. An employee may find that when high-quality work is done, the supervisor 
 
2gives a reward of recognition, and as a result, behaviour is reinforced and the employeetends to want to do high-quality work once again.
Negative Reinforcement
 provides an unfavourable consequence that does not encouragerepetition of undesirable behaviour. For example, a strong disapproval can be showntowards tardy employees to make them aware if the fact that coming late to work is notallowed and not accepted. (However, it is also possible to motivate such an employee tocome on time, if the manager expresses strong approval of each on-time or early arrival).
Schedules of Reinforcement
1.
Fixed Ratio:
Schedule occurs when there is reinforcement after a certain number of correct responses, e.g. payment of bonuses after a sale of certain number of items, which encourages the employees to sell more items.2.
Fixed Interval:
Schedule provides reinforcement after a certain period of time,e.g. a paycheck that arrives every two weeks, which an employee can alwaysdepend on, except in very unusual circumstances3.
Variable Ratio:
Schedule is reinforced after a variable (but undisclosed) number of correct responses, e.g. payment of bonuses after a sale of certain number of items, but here the specific number is unknown, and this provokes interest.4.
Variable Interval:
Schedules give reinforcement after a variety of time periodse.g. a company’s policies of making safety inspections of every department, four times a year, in order to encourage companies with safety regulations – theinspections are made on random basis, and the intervals between them vary.The reinforcement theory postulates that a behaviour, which has a rewarding experience,is likely to be repeated. The implication for remuneration is that high employee performance followed by a monetary reward will make future employee performancemore likely. By the same token, a high performance not followed by a reward will makeits recurrence unlikely in future. The theory emphasises the importance of a personactually experiencing the reward.
 Adam’s Equity Theory
Employees work in a social system in which each is dependent to some degree on theothers. Employees interact with one another on tasks and on social occasions. Theyobserve one another, judge one another, and make comparisons. The equity theory buildson this notion of comparison, to add new dimensions to our overall understanding of employee motivation.Equity theory says that employees weigh what they put into a job situation (
input
) againstwhat they get from it (
reward
), and then compare their input-reward ratio with the input-reward ratio of relevant others.
One’s own rewards compared Others’ rewardsOne’s own inputs to Others’ inputs
If they perceive their ratio to be equal to that of the relevant others with whom theycompare themselves, a state of equity is said to exist. They feel that their situation is fair,that justice prevails, and they will continue to contribute at about the same level.
 
3If the ratios are unequal, inequity exists; that is, the employees tend to view themselves asunder-rewarded or over-rewarded. When inequities occur, they will experience tensionthat will create the motivation to reduce the inequity, in an attempt to correct them.If employees feel over-rewarded, equity theory predicts that they will feel an imbalance intheir relationship with their employer and seek to restore that balance. They might work harder, they might discount the value of the rewards received, they could try to convinceother employees to ask for more rewards, or they might simply choose someone else for comparison purposes.Workers, who feel they have been under-rewarded, might lower the quantity or quality of their productivity, they could inflate the perceived value of the rewards received, or theycould bargain for more actual rewards. Again, they could find someone else to compare(more favourably) with, or they might simply quit. In any event, they are reacting toinequity by bringing their inputs into balance with their outcomes.
Interpreting The Equity Model
Adam’s equity theory puts forward that an employee who perceives inequity in his or her rewards seeks to restore equity. The theory emphasises equity in pay structure onemployees’ remuneration.A manager using the equity model should measure employee assessments of their inputsand outcomes, identify their choice of references and evaluate employee perceptions of inputs and outcomes.
 Agency Theory
The agency theory focuses on the divergent interests and goals of the organisation’sstakeholders and the way that employee remuneration can be used to align these interestsand goals.Employers and employees are the two stakeholders of a business unit, the former assuming the role of principals and the latter the role of agents.The remuneration payable to employees is the agency cost. It is natural that theemployees expect high agency costs while the employers seek to minimise it.The agency theory says that the principal must choose a contracting scheme that helpsalign the interest of the agents with the principal’s own interests.These contracts can be classified as either behaviour-oriented (e.g. merit pay) or outcome-oriented (e.g. stock option schemes, profit sharing and commissions). In fact, outcome-oriented contracts seem to be the obvious solution, because as the profits go up, rewardsalso increase, and similarly, remuneration falls when profits go down.
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