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Chapter 4: Behavioral Theories of Compensation AND BENEFITS -------------------------------------------------------------------------------This chapter examines the psychological and sociological theories of compensation. -------------------------------------------------------------------------------No one questions the interest of economists in wages. After all, wages are a form of price. But why are psychologists and sociologists interested in pay? What concepts link the interests of these behavioral scientists to pay? THE EMPLOYMENT EXCHANGE The most obvious concept is the concept of exchange that economists, psychologists, and sociologists use to study behavior. It is useful to think of employment as involving an exchange of work for pay. Economists treat employment as an exchange of time, effort, and ability for payment in money or in kind. Psychologists view employment as an exchange of behavior and attitudes for money and other sources of satisfaction. Sociologists approach employment as a broad exchange of tangible and intangible inputs and outputs among people whose behavior influences one another and in turn influences and is influenced by other segments of society. The parties to the exchange most commonly are the individual and the organization. If a union is involved, the exchange is between the union and the organization. The parties do not have to have equal power, but they must be able to influence the other party for the exchange to take place.
continuing exchanges tend to be less well defined. it is useful to specify the kinds of behavior organizations require from employees. But in all cases compensation in its various forms (cash. Most employment exchanges are expected to be long term. rewards (anything received that is recognized and considered relevant). Likewise. Although in some exchanges hours of work and sometimes production standards are specified on one side and pay rates and benefits on the other. We assume that neither party enters into or continues in the employment exchange unless it perceives that the rewards are equal to or exceed the required contributions. comparison standards. a comparison process (comparing rewards with contributions and with some standard). supervision and work rules. and work rules. our major focus is on the rewards to employees. and non-financial rewards) is central to it. Organizations require that individuals (1) join and remain with the organization (membership). Logically. The input of one party is the output to the other. Often. benefits. (4) . Individuals enter the employment exchange because they perceive their rewards as greater in value than their contributions. because the two parties place different values on what is being exchanged. and results (attitudes and behavior). contributions. The contract is implicit except in the case of a labor agreement. In most exchanges there are long-term expectations by both parties that extra inputs will eventually result in extra rewards. the exchange still takes place. and results pertinent to both parties. and the definition of rewards to starting pay. (2) carry out job assignments dependably. However. Exchanges intended to be short term tend to be carefully specified. what we have been calling the employment exchange is referred to as an employment contract. supervision. in most the definition of work is left to job descriptions. There can be varying perceptions of the exchange by the two parties. Although it is possible to study the employment exchange in terms of rewards. the organization enters the exchange because what the organization receives has more value to it than what it contributes. The exchange process works because it is perceptual: each party perceives the value of the rewards received as greater than the contributions made. Required Employee Behaviors Although the employment contract usually leaves the definition of work to job descriptions. (3) achieve organization objectives beyond the job assignment through innovative and spontaneous behaviors. and vice versa.Exchange is a double input-output system in that each party is contributing something to the exchange and in return is receiving something. the exchange includes contributions (anything provided that is recognized and considered relevant).
such as designing jobs so that prescribed job performance is sufficient.cooperate with others. and (8) create a favorable climate. For this reason. Compensation administration is an application of motivation theory. and performance. But if providing motivation to perform is too costly or too much trouble. and individual goals. it can obtain other specific behaviors through compensation policies and programs. Although motivation is complex and much remains to be learned about it. Membership motivation results from a favorable inducementscontributions balance. They carefully distinguish the motivation to acquire and keep organizational membership (their term is motivation to participate) from productivity (the motivation to perform). In the following discussion of motivation theory. including behavior in organizations. motivation theory can be considered a form of compensation theory. MOTIVATION THEORY The most visible contribution of behavioral scientists to compensation theory is motivation theory. Unfortunately. organizations appear to believe that they obtain all these behaviors merely by hiring the employee. it typically concentrates on the first two. we will argue that some theories seem to fit better with organization-required behaviors. (7) carry out self-training. retention. perceived consequences of these alternatives. Motivation theory seeks to explain all kinds of motivated behavior in all kinds of situations. enough may be known to guide organizations in designing and managing compensation programs. especially membership and performance. Employees must perceive a continuing favorable balance if they are to remain members. Perhaps the most explicit statement of the distinction between membership and performance behaviors required by organizations and the quite different sources of these behaviors was made by March and Simon. (6) make creative suggestions. That is. . applicants must perceive that what they get from the organization at least balances what they must give to it. Organizations have no choice but to provide membership motivation if they wish to remain organizations. The motivation to perform represents a much more complex psychological contract between the individual and the organization involving perceived alternatives. the organization may choose other routes to organizational goals. As we will see. organizations would be wise to focus separately in compensation administration on attraction. Although compensation could be used to encourage all these behaviors. (5) protect the organization against disaster.
safety. it dissipates after mastery. A need for competence in mastering the environment is supposedly aroused when individuals are faced with new. Thus motivation can make little or much difference in performance. A need for affiliation has been suggested but not carefully studied. People are strongly influenced by their environment. but they differ on this need and become adapted to certain levels of stimulation. The second involves the choices they make in what to do. There may be an innate need for contact and a tendency for people to congregate during a crisis. an organization’s tasks vary in their requirements. One problem with predicting behavior from individual needs is that people seem to have differing degrees of needs at different times of their lives. and self-actualization.Most behavior is in some sense motivated. Content theories focus on the factors that motivate behavior. Individuals have been found to differ in their need for achievement. A need for power has been suggested as a requirement for success in organizations. The need for achievement and the work of McClelland on it are well known. People with a high need for achievement prefer moderate risks and immediate feedback and enjoy doing tasks for a sense of accomplishment. Classifications of needs can be considered a response to this finding. CONTENT THEORIES Content or arousal theories center on needs or drives. Effective managers may have a high need for power. esteem. Separately identifying this need appears to be a problem. physiological. The first is concerned with why people do anything at all. Closely related are curiosity or activity needs: people need and enjoy a stimulating environment. Also. Productivity is posited to be related to this need. Several physiological and social needs have been identified and studied. belonging. Ability and knowledge of what one is supposed to do combine with motivation in determining behavior in organizations. challenging situations. depending on the task. Process theories explain how these factors operate. The need can be increased by training. This means that organizations can influence people’s behavior by changing environments and rewards. But motivation is not the sole determinant of behavior. His classification. A similar way of classifying motivation theory is to distinguish content and process theories. Maslow’s hierarchy of needs represents the first major attempt to classify needs that are relevant to organizational behavior. Psychologists studying motivation have focused on two psychological processes: arousal and choice. Need classifications have been offered. is well .
Consistency theory suggests that people choose jobs and behaviors based upon the consistency between their self-image and the demands of the job or the expectations of friends. But the implications of the theory that there are higher-order as well as lower-level needs and that different people want different things were major contributions. Arousal is caused by inconsistency. task identity.known. Maslow argues that these needs constitute a hierarchy. McGregor’s theory X-theory Y and Herzberg’s motivators and hygienes flow from Maslow’s higher. the less it is a motivator. Empirical studies have provided only modest support for them. and growth. and the proportion of the variance in performance explained has been low. the theory does not state that one need is more important than another or that only unsatisfied needs arouse behavior. higher-order needs should be better motivators. and the growth needs may increase with satisfaction. In this model characteristics of the job (skill variety. Moreover. Also. autonomy. Because in American society the first two needs are presumably satisfied. task significance. feedback) cause psychological states that in turn cause motivation and performance. Although this classification also represents a hierarchy. the greater the fulfillment of a particular need. . Hygienes and motivators don’t operate in the same way for everyone. Thus. little research has been done to test the theory. their order. The model suggests that enriched jobs motivate people with high growth needs. Alderfer’s ERG theory postulates three categories of needs: existence. Most normal people move upward in the hierarchy as lower level needs are satisfied. The empirical evidence does not support Herzberg’s conclusion that only the motivators provide job satisfaction and motivated employees. All three motives may be working to some degree at one time.and lower-order needs. An evaluation of the motivation theories based on needs would probably focus on their limitations. Empirical tests of the model suggest that job enrichment affects satisfaction more than performance and quality more than quantity. or the suggestion that one need must be satisfied before the next one is activated. his results are influenced by his method of data collection. Another content motivation theory is the job characteristics model. growth needs affect satisfaction more than performance. But Herzberg’s work contributed to an understanding of the conditions that lead to job satisfaction and the reasons that different people are motivated by different rewards. Although empirical data seem to fit this classification better than Maslow’s. Empirical tests of the theory have not supported the categories. relatedness.
Empirical work shows that social cues do affect performance. PROCESS THEORIES Process or choice theories explain the operation of motivation. or the factors that influence an individual to choose one action rather than another. COGNITIVE THEORIES The major cognitive theories are equity theory. inputs are seen as too great relative to outcomes. or follow step 3 or 4 above. (3) change their comparison standard. then they are comfortable with the situation and no change is predicted to occur. outcomes. including oneself in a previous situation. The comparisons are between the ratio of outcomes to inputs and some standard. if they perceive the situation as in balance (fair). The idea is that people look at their inputs and the payoff they receive and compare the latter with what they think their comparison standard is getting. Process theories can be subdivided into cognitive and non-cognitive approaches. underreward inequity is experienced. To remove this inequity people can (1) reduce their inputs (actually or perceptually). the comparison is with co-workers. Noncognitive theories see behavior as caused by environmental contingencies. (2) decrease outcomes. . however. Outcomes are what the individual receives from the situation. goal-setting theory. The components of equity theory are inputs. All of them focus on perceptions of the outcomes that flow from behavior. In Adams’s application of the theory to organizations.A final content theory suggests that social cues stimulate behavior as a result of (1) the presence of others. or (4) leave the situation. and (3) desires to conform to the opinions of co-workers. a state of overreward inequity exists. seem equally probable. Cognitive theories see behavior as involving some mental process. and expectancy theory. that is. (2) wishes to be evaluated favorably by others. If a state of equity exists. When. Results are the behaviors and attitudes that flow from the comparison. If outcomes are too great compared with inputs. To correct this situation the individual may (1) increase inputs. (2) increase their outcomes (actually or perceptually). comparisons. It predicts that people will choose the alternative they perceive as fair. Inputs are the attributes the individual brings to the situation and the activities required (investments and costs). But other standards of comparison. Equity Theory This theory suggests that motivated behavior is a form of exchange in which individuals employ an internal balance sheet in determining what to do. and results.
. Little is known. reports no difficulty and has offered several methods of doing this. Although Jaques. He reports measuring time span of discretion at all levels of work and measuring felt fair pay. Jaques’ theory of equitable payment holds that individuals have an intuitive knowledge of their capacity. Finally. In addition. Using the theory requires measuring the individual’s level of work and providing the proper pay for that level of work. contains several unsolved problems. pay is less or more than that justified by the level of their work. Measuring time span of discretion is the major problem with the theory. perceptions of inequity have been shown to be related to absenteeism and turnover. Reduced performance following feelings of inequity resulting from lower compensation for the same job has also been reported. they achieve psychological equilibrium. the amount of pay the individual perceives as fair for his or her level of work. the level of their work. and the fairness of their pay. and personal values. about how people select a comparison standard. In some cases. the definition of equity employed by individuals has been challenged. people follow a winner-takeall strategy. Atchison and Richardson were able to measure both time span of discretion and felt fair pay. for example. but others question the stability and measurability of both of these concepts. hourly employees prefer equity. individuals perceive inequity and react to it. asking supervisors the duration of the most extended task assigned to subordinates. Jaques believes that level of work can be measured by determining an individual’s time span of discretion ? the maximum period of time the individual’s work is permitted to go unreviewed.Empirical tests of equity theory have in general accorded with predictions regarding over and under reward. When their capacity is properly utilized in their work and when their pay matches their level of work. Equity is achieved when felt fair pay equals actual pay or deviates from it by less than minus 10 percent or plus 20 percent. equity ratios and resolution strategies have been found to vary with culture. But equity theory. family orientation. at least as stated by Adams. however. How people combine inputs and outcomes and how these factors change over time are likewise unexplained. Salaried employees have been found to prefer equality rather than equity. His present method is apparently that developed by Atchison. It is also difficult to define inputs and outcomes. however. Also. Another version of equity theory was developed by Elliot Jaques of Great Britain. When.
the results support equity theory and its components and yield suggestions for improving compensation programs. It also measures the perceived discrepancy between the existing rewards and contributions and respondent preferences. Tests of the theory . If individuals perceive the situation as equitable. They are important only as they affect the goals. goal acceptance (the degree the goal becomes the conscious intention). and (3) personal inputs ? contributions that are not obviously required by the job but that individuals believe are relevant to the organization. The more specific the goal. Likewise. These studies use concepts from both streams of equity theory. In addition. An individual’s decision that equity exists seems to represent the attitudinal counterpart of March and Simon’s inducements-contributions balance. These concepts are assumed to be the motivation. Hard goals. goals (performance standards).A number of studies of equity in operating organizations have been made by the authors. Individual goal setting should be more effective than group goals because it is the impact of goals on intentions that is important. neither are the critical element. it measures comparison standards and preferred response to perceived inequity. Although they are subject to the limitations of survey research. Participation in goal setting should increase commitment and acceptance. Both the rewards desired and contributions seem to be culturally based and to vary occupationally and demographically. From the studies it seems useful to classify outcomes as (1) extrinsic rewards. We lean heavily toward equity theory as a useful explanation of membership motivation. are postulated to be better than easy ones. The rationale of these studies has been to test the validity of equity theory as an aid in designing organization compensation programs. (2) performance-related contributions. An instrument has been developed that reliably measures the perceived importance of a rather large number of potential rewards and contributions. (2) intrinsic rewards. Goal-Setting Theory This theory argues that employees set goals and that organizations can influence work behavior by influencing these goals. Although the incentive or reward may affect goal acceptance and commitment. when accepted. the greater its impact. People can and do perceive a large number of inputs and outcomes as relevant. inputs can be usefully classified as (1) job-related contributions. they are likely to join the organization and continue their membership. The major concepts in the theory are intentions (targets). and (3) rewards provided by the organization that it is not aware of providing. In goal-setting theory the crucial factor is the goal. and goal commitment (effort expended). They can compare what exists and what they want.
Difficult. The theory also implies that since different people desire different rewards. Rewards and social pressure have been found to affect performance independent of goals. organizations should try to match rewards with what employees want. summed the product of expectancy (E?P) and the sum of the products of each instrumentality (P?0) and its valence (V). The usual approach is to obtain expectancies. Expectancy Theory This theory argues that people choose the behavior they believe will maximize their payoff. by E. effort. a person will behave in whatever way results in the highest score in this equation: (S[(E?P) X S[(P?0)(V)]]). specific goals combined with feedback and rewards for goal attainment should result in highly motivated employees. and valences by questionnaire or interview and to relate these responses to self-reported or measured choices. It has been found that expectancy theory can do an excellent job of predicting occupational choice and job satisfaction and a moderately good job of predicting effort on the job. Therefore. each with a separate valence. though it may increase satisfaction. Expectancy theory implies that the anticipation of rewards is important as well as the perceived contingency between the behaviors desired by the organization and the desired rewards.show that using goals leads to higher performance than situations without goals. accepted. or performance. does not always lead to higher performance. such as occupational choice. Expectancy theory has been tested extensively. But participation in goal setting. who developed a model both to predict choice of occupation and how much effort will be expended on the job. In this model each expectancy is multiplied by its valence and the products are summed. and that difficult goals lead to better performance than easy ones. This means that there is only one probability of effort leading to performance but several possible outcomes from performance. instrumentalities. job satisfaction. . The earliest statement of expectancy theory was made by V. Vroom. Assigned goals may work as goals set with employee participation.H. Although the formal elements are expectancies and valences. The elements in the theory are expectancies that certain outcomes will occur and the valence (anticipated satisfaction) of those outcomes. The theory predicts that the individual will choose the alternative with the highest expected return. Later formulations. in most formulations expectations are divided into two types: expectancy (the expectation that effort will lead to performance) and instrumentality (the expectation that performance will lead to reward). Lawler. It states that people look at various actions and choose the one they believe is most likely to lead to the rewards they want the most.
a non-cognitive approach would seem superior. do want to believe that greater effort results in improved performance. For such groups expectancy theory seems the preferred route to performance motivation. Behavior Modification . Some employees may want other rewards the organization doesn’t want to provide (autonomy for a file clerk. Although for most people more money is better. It should be apparent that the possibility of securing performance motivation through the application of expectancy theory varies by employee group and the technology of the organization. organizations should be aware of possible difficulties. results in poor performance. it should be noted that the components of expectancy theory are beliefs that require a good deal of information and a rather complex cognitive process in determining action. Again. and do want to believe that better performance leads to greater rewards. employees may not believe that good performance does in fact lead to more desired rewards. For example. they claim that it is the environment that determines the behavior of the person. But for groups who lack these beliefs because of lack of information or whose behavior is guided by habitual actions or by what they see others do. Finally. Instead. In some jobs. Or they may believe that in order to get more of one reward (pay) they must give up another reward (security or pleasant social relationships). Or employees may not believe that performance always reflects their efforts. Some employee groups do want the rewards the organization has to offer.Although these implications suggest that following the requirements of expectancy theory will lead to performance motivation in organizations. to control behavior. Therefore. NON-COGNITIVE THEORIES Non-cognitive theories do not dwell on what goes on in the person’s head. Many factors that are beyond employee control may affect performance. For many types of employees (and in many organizations) the relationship between performance and rewards is in fact very low and it is impossible to convince employees that high performance leads to high rewards. for example. employees may not want more of the rewards offered by organizations. and convincing them may require more changes than the organization is prepared to make. there may be some who don’t value it highly. one must control the person’s environment. the relationship between effort and performance is beyond the control of employees. even with maximum effort. Poor selection and training of employees. for example).
One criticism of the operant approach is that the results found are due not to reinforcement but to the feedback used. Operant conditioning and approaches based on expectancy theory are similar. sneezes are an example. A practitioner and a former student of the authors applied behavior modification over five years and found that feedback can produce a performance improvement of up to 18 percent. The result is a determination of the rewards that work best and the best reinforcement schedule. or to some other confounding variable. The components of the theory. One of the issues in the use of operant conditioning is the optimal schedule of reinforcement. Studies using variable schedules have conflicting results. Ones that decrease the frequency are negative reinforcers. A study by Latham showed a 33 percent increase for a continuous schedule and none for the control group. are the ideas of reinforcement and environmental determinism. The behaviorist believes that operant behavior is caused by environmental events. but that reinforcement results are much greater. which is based on the work of Skinner. Human beings are assumed to emit two types of behavior: respondent and operant. the frequency of the behavior can be manipulated by using the reinforcer. Consequences that increase the frequency of behavior are called positive reinforcers. Both argue that the contingency between the behavior and the reward is crucial. Skinner argues that no cognitive processes are involved. The major difference is the presence or absence of mental processes: cognition. But whenever an operant behavior is followed by a consequence that changes the likelihood that the behavior will recur. Respondent behaviors are controlled by instincts and direct stimulation. Skinner suggests that continuous reinforcement produces more immediate change but that variable reinforcement produces changes that are more lasting. Current behavior is caused by the history of their reinforcement. The first one is specifying the behavior to be changed.This theory of operant conditioning is such an approach. but a big difference between reinforcing and not reinforcing. to the goals. Most programs include frequent reports and feedback. Implementing a behavior modification program involves a number of steps. When it is discovered that a consequence serves as a positive or negative reinforcer for a particular behavior. Operant behaviors are emitted in the absence of any apparent external stimulation. Then various outcomes contingent on the desired behavior are administered and changes in frequency observed. the event or consequence is called a reinforcer. Next. . Tests of the theory show that there is little difference in performance between the types of schedules. its present frequency (the base rate) must be measured.
It has been suggested that behavior can be (1) traced to beliefs or perceptions (expectancy theory). Called social learning theory.Recently the issue of whether behavior modification is entirely non-cognitive has arisen. (2) traced to reinforcement (operant conditioning). Welcome to www. or (3) learned from the experiences of others. this proposal seems to bridge cognitive and non-cognitive motivation theory.com Economic Theories of Compensation Economic Theories of Compensation Behavioral Theories of Compensation AND BENEFITS .Successpk.
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