AIR UNIVERSITY ISLAMABAD

HRM & O B
THEO RETICAL FO UND ATIO NS O F HRM & O B

Facilitator
MUHAMMAD ALI BAIG
MHRM, MP M, P MP , MP HIL

UNIT 2
Fo cu s & P u r p o s e o f
HRM & O B Th e o r ie s
• The main focus and purpose of HRM theories are to provide frameworks
and guidelines for u n d e rs t a n d in g , a n a lyzin g , a n d m a n a g in g p e o p le
w it h in o rg a n iza t io n s .
• Th e s e t h e o rie s o ffe r va lu a b le in s ig h t s in t o va rio u s a s p e c t s o f HRM,
in c lu d in g re c ru it m e n t , s e le c t io n , t ra in in g , p e rfo rm a n c e m a n a g e m e n t ,
c o m p e n s a t io n , e m p lo ye e re la t io n s , a n d o rg a n iza t io n a l d e ve lo p m e n t .
• Th e y p ro vid e c o n c e p t u a l fra m e w o rks , re s e a rc h -b a s e d in s ig h t s , a n d
p ra c t ic a l g u id e lin e s fo r m a n a g in g h u m a n re s o u rc e s e ffe c t ive ly in
o rg a n iza t io n s .
W h y t o Le a r n Ab o u t
HRM & O B Th e o r ie s
Un d e rs t a n d in g Hu m a n Be h a vio r:
• By examining factors such as motivation, attitudes, perceptions, and
interpersonal dynamics, HRM theories provide insights into how
employees think, feel, and act in work settings.
O p t im izin g Em p lo ye e P e rfo rm a n c e :
• By id e n t ifyin g fa c t o rs t h a t in flu e n c e e m p lo ye e m o t iva t io n , s a t is fa c t io n ,
a n d e n g a g e m e n t , HRM t h e o rie s h e lp o rg a n iza t io n s d e s ig n s t ra t e g ie s a n d
in t e rve n t io n s t o m a xim ize e m p lo ye e c o n t rib u t io n s t o o rg a n iza t io n a l
g o a ls .
W h y t o Le a r n Ab o u t
HRM & O B Th e o r ie s
P ro m o t in g O rg a n iz a t io n a l Effe c t ive n e s s :
• By emphasizing the importance of strategic HR planning, talent
management, and employee development, HRM theories help
organizations build high -performing workforces capable of achieving
strategic objectives.
M a n a g in g Em p lo ye e Re la t io n s :
• By u n d e rs t a n d in g t h e d yn a m ic s o f s o c ia l e xc h a n g e , p o w e r d yn a m ic s , a n d
p s yc h o lo g ic a l c o n t ra c t s , HRM t h e o rie s h e lp o rg a n iza t io n s fo s t e r p o s it ive
re la t io n s h ip s b e t w e e n e m p lo ye e s a n d m a n a g e m e n t , m in im ize c o n flic t s ,
a n d p ro m o t e a s u p p o rt ive w o rk e n viro n m e n t .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry:

This theory posits that there is n o o n e -s ize -fit s -a ll a p p ro a c h t o m a n a g in g

h u m a n re s o u rc e s, a n d t h e m o s t e ffe c t ive HR p ra c t ic e s d e p e n d o n t h e

s p e c ific c o n t e xt o r s it u a t io n .

It e m p h a s ize s t h e im p o rt a n c e o f a d a p t in g HR s t ra t e g ie s a n d p ra c t ic e s t o fit

t h e u n iq u e c h a ra c t e ris t ic s o f o rg a n iza t io n s , s u c h a s s ize , in d u s t ry, c u lt u re ,

a n d e xt e rn a l e n viro n m e n t .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ke y P rin c ip le s
1. Fit w it h O rg a n iza t io n a l Co n t e xt :
HR practices should be aligned with the broader organizational context,
in c lu d in g t h e o rg a n iza t io n 's g o a ls , s t ru c t u re , c u lt u re , a n d e xt e rn a l
e n viro n m e n t .
Fo r Exa m p le , a h ig h ly in n o va t ive a n d d yn a m ic o rg a n iza t io n m a y re q u ire
d iffe re n t HR p ra c t ic e s c o m p a re d t o a m o re t ra d it io n a l a n d b u re a u c ra t ic
o rg a n iza t io n .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ke y P rin c ip le s
2. Fle xib ilit y a n d Ad a p t a b ilit y:

Effective HRM involves being flexible and adaptable to c h a n g in g

c irc u m s t a n c e s .

O rg a n iza t io n s m u s t b e w illin g t o a d ju s t t h e ir HR p ra c t ic e s in re s p o n s e t o

s h ift s in m a rk e t c o n d it io n s , t e c h n o lo g ic a l a d va n c e m e n t s , re g u la t o ry

re q u ire m e n t s , a n d o t h e r e xt e rn a l fa c t o rs .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ke y P rin c ip le s

3. Cu s t o m iza t io n a n d Ta ilo rin g :

HR practices should be customized and tailored to meet the specific needs

a n d p re fe re n c e s o f e m p lo ye e s a n d s t a k e h o ld e rs w it h in t h e o rg a n iza t io n .

Th is m a y in vo lve o ffe rin g d iffe re n t b e n e fit s p a c k a g e s, c a re e r d e ve lo p m e n t

o p p o rt u n it ie s , a n d w o rk a rra n g e m e n t s b a s e d o n in d ivid u a l p re fe re n c e s a n d
c irc u m s t a n c e s .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ke y P rin c ip le s

4 . Co n t in g e n c y Fa c t o rs :

The effectiveness of HR practices is contingent upon various factors,

in c lu d in g o rg a n iza t io n a l s ize , in d u s t ry, t e c h n o lo g y, w o rk fo rc e d e m o g ra p h ic s ,
a n d c o m p e t it ive s t ra t e g y.

D iffe re n t o rg a n iza t io n s m a y re q u ire d iffe re n t HR a p p ro a c h e s b a s e d o n t h e ir

u n iq u e c o m b in a t io n o f c o n t in g e n c y fa c t o rs .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ke y P rin c ip le s

5. Co n t in u o u s Mo n it o rin g a n d Eva lu a t io n :

Organizations should continuously monitor and evaluate the effectiveness of

t h e ir HR p ra c t ic e s t o e n s u re t h e y re m a in re le va n t a n d re s p o n s ive t o
c h a n g in g c o n d it io n s .

Re g u la r a s s e ss m e n t s o f HR o u t c o m e s a n d e m p lo ye e fe e d b a c k c a n h e lp
id e n t ify a re a s fo r im p ro ve m e n t a n d in fo rm a d ju s t m e n t s t o HR s t ra t e g ie s a n d
p ra c t ic e s.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B
q

1. O rg a n iza t io n a l D e s ig n :

The theory emphasizes that the structure and design of an organization

s h o u ld b e c o n t in g e n t u p o n it s e xt e rn a l e n viro n m e n t , s t ra t e g y, a n d in t e rn a l
c a p a b ilit ie s.
Co n c e p t s s u c h a s m e c h a n is t ic ve rs u s o rg a n ic s t ru c t u re s , c e n t ra liza t io n
ve rs u s d e c e n t ra liza t io n , a n d s p a n o f c o n t ro l a re a ll in flu e n c e d b y c o n t in g e n c y
t h e o ry p rin c ip le s.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B

2. Le a d e rs h ip St yle s :

Contingency theory suggests that effective leadership depends on the fit

b e t w e e n t h e le a d e r's s t yle a n d t h e d e m a n d s o f t h e s it u a t io n .

Co n c e p t s s u c h a s t a s k -o rie n t e d ve rs u s re la t io n s h ip -o rie n t e d le a d e rsh ip ,

s it u a t io n a l le a d e rsh ip , a n d t h e p a t h -g o a l t h e o ry o f le a d e rs h ip a ll s t e m fro m
c o n t in g e n c y t h e o ry p rin c ip le s.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B
Ta s k -o rie n t e d Le a d e rs h ip :
This style of leadership focused primarily on achieving specific goals and
o b je c t ive s . Le a d e rs w h o a d o p t t h is a p p ro a c h p rio rit ize t a s k a c c o m p lish m e n t ,
e ffic ie n c y, a n d p ro d u c t ivit y.
Re la t io n s h ip -o rie n t e d Le a d e rs h ip :
Th is s t yle o f le a d e rsh ip p rio rit ize s b u ild in g s t ro n g in t e rp e rs o n a l re la t io n s h ip s,
fo s t e rin g t ru s t , a n d p ro m o t in g c o lla b o ra t io n w it h in t e a m s . Le a d e rs w h o
a d o p t t h is a p p ro a c h fo c u s o n t h e w e ll-b e in g a n d s a t is fa c t io n o f t e a m
m e m b e rs, s e e k in g t o c re a t e a p o s it ive w o rk e n viro n m e n t .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B
Sit u a t io n a l Le a d e rs h ip :
Flexible leadership approach. Leaders employ different leadership styles,
s u c h a s d ire c t in g , c o a c h in g , s u p p o rt in g , o r d e le g a t in g , b a s e d o n t h e
in d ivid u a l o r t e a m 's d e ve lo p m e n t le ve l a n d t h e re q u ire m e n t s o f t h e t a s k a t
hand.
P a t h Go a l Th e o ry Le a d e rs h ip :
It e m p h a s ize s t h e le a d e r's ro le in c la rifyin g p a t h s t o g o a ls , re m o vin g
o b s t a c le s, a n d p ro vid in g s u p p o rt t o e n h a n c e fo llo w e r m o t iva t io n a n d
p e rfo rm a n c e .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B

3. D e c is io n -Ma k in g P ro c e s s e s :

Contingency theory highlights the importance of adapting decision -

m a k in g p ro c e sse s t o t h e sp e c ific c irc u m st a n c e s fa c e d b y o rg a n iza t io n s.

Co n c e p t s su c h a s b o u n d e d ra t io n a lit y, sa t isfic in g , a n d t h e Vro o m -Ye t t o n -

J a g o d e c isio n -m a k in g m o d e l a re a ll ro o t e d in c o n t in g e n c y t h e o ry id e a s.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B

Bo u n d e d Ra t io n a lit y:
This concept suggests that individuals have limited cognitive abilities,
in fo rm a t io n , a n d t im e t o m a k e d e c isio n s.

D e c isio n -m a k e rs c a n n o t re a list ic a lly e va lu a t e a ll p o ssib le a lt e rn a t ive s a n d

o u t c o m e s b e fo re m a k in g a d e c isio n .

As a re su lt , in d ivid u a ls re ly o n sim p lifyin g st ra t e g ie s, ru le s o f t h u m b , a n d

h e u rist ic s t o n a vig a t e c o m p le x d e c isio n -m a k in g sit u a t io n s.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B

Sa t is fic in g :

It is a tendency of individuals to settle for a satisfactory or "good enough"

o p t io n ra t h e r t h a n st rivin g fo r a n o p t im a l so lu t io n .

In st e a d o f e xh a u st ive ly se a rc h in g fo r t h e b e st p o ssib le a lt e rn a t ive ,

d e c isio n -m a k e rs in o rg a n iza t io n s o ft e n e m p lo y sa t isfic in g st ra t e g ie s d u e t o

t im e c o n st ra in t s, lim it e d in fo rm a t io n , o r c o g n it ive lim it a t io n s.

In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B

Vro o m -Ye t t o n -J a g o D e c is io n -Ma k in g Mo d e l: (1/ 2)

It helps leaders determine the most appropriate decision -m a k in g st yle fo r

a g ive n sit u a t io n .

It c o n sid e rs va rio u s fa c t o rs su c h a s t h e im p o rt a n c e o f t h e d e c isio n , t h e

e xp e rt ise o f t h e le a d e r, a n d t h e le ve l o f c o m m it m e n t a m o n g t e a m
m e m b e rs.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B

Vro o m -Ye t t o n -J a g o D e c is io n -Ma k in g Mo d e l: (1/ 2)

Involves a series of decision -m a k in g m e t h o d s ra n g in g fro m a u t o c ra t ic
(le a d e r d e c id e s a lo n e ) t o c o n su lt a t ive (le a d e r g a t h e rs in p u t fro m t e a m
m e m b e rs) t o g ro u p -b a se d (le a d e r in vo lve s t h e e n t ire t e a m in d e c isio n -
m a k in g ).
Th e c h o ic e o f d e c isio n -m a k in g st yle d e p e n d s o n sit u a t io n a l fa c t o rs a n d
a im s t o m a xim ize t h e q u a lit y o f d e c isio n s.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B

4 . O rg a n iz a t io n a l Cu lt u re :

Contingency theory acknowledges that organizational culture should be

a lig n e d w it h t h e e xt e rn a l e n viro n m e n t a n d st ra t e g y.

Co n c e p t s su c h a s st ro n g ve rsu s w e a k c u lt u re s, a d a p t ive c u lt u re s, a n d
c u lt u ra l fit a re a ll in fo rm e d b y c o n t in g e n c y t h e o ry p e rsp e c t ive s.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B

St ro n g Cu lt u re :
Refers to a set of shared values, beliefs, norms, and behaviors that are
d e e p ly in g ra in e d a n d w id e ly a c c e p t e d w it h in a n o rg a n iza t io n .

In a st ro n g c u lt u re , t h e re is a h ig h le ve l o f c o n se n su s a m o n g e m p lo ye e s
re g a rd in g w h a t is c o n sid e re d im p o rt a n t a n d a p p ro p ria t e .

St ro n g c u lt u re s o ft e n c o n t rib u t e t o o rg a n iza t io n a l c o h e sio n , id e n t it y, a n d

st a b ilit y, g u id in g e m p lo ye e b e h a vio r a n d d e c isio n -m a k in g .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B

W e a k Cu lt u re :
This lacks clear, well -d e fin e d va lu e s, b e lie fs, a n d n o rm s.

In o rg a n iza t io n s w it h a w e a k c u lt u re , t h e re m a y b e a la c k o f c o n se n su s o r
c o h e re n c e in t e rm s o f o rg a n iza t io n a l id e n t it y a n d d ire c t io n .

Em p lo ye e s m a y h a ve d ive rse p e rsp e c t ive s, a n d t h e re m a y b e in c o n sist e n c y

in b e h a vio r a n d d e c isio n -m a k in g .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Co n t in g e n c y Th e o ry: Ho w t h e Th e o ry In flu e n c e d HRM a n d O B

Ad a p t ive Cu lt u re :
In adaptive cultures, organizations are responsive to internal and external
c h a lle n g e s, a b le t o in n o va t e , a n d q u ic k t o a d a p t t o c h a n g in g
c irc u m st a n c e s.

Em p lo ye e s fe e l e m p o w e re d t o c h a lle n g e t h e st a t u s q u o , t a k e c a lc u la t e d
risk s, a n d e m b ra c e c h a n g e a s a n a t u ra l p a rt o f t h e o rg a n iza t io n a l
e n viro n m e n t .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Hu m a n Ca p it a l Th e o ry:

Human Capital Theory is a fundamental theory in economics and human

re so u rc e m a n a g e m e n t t h a t vie w s in d ivid u a ls' k n o w le d g e , sk ills, a n d
a b ilit ie s a s valuable assets (h u m a n c a p it a l) t h a t c a n e n h a n c e p ro d u c t ivit y
a n d e c o n o m ic o u t p u t .

It e m p h a size s in ve st m e n t in e m p lo ye e s t h ro u g h t ra in in g , e d u c a t io n , a n d
d e ve lo p m e n t t o e n h a n c e t h e ir p ro d u c t ivit y a n d p e rfo rm a n c e .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Hu m a n Ca p it a l Th e o ry: Ke y P rin c ip le s
1. In ve s t m e n t in Ed u c a t io n a n d Tra in in g :
The theory suggests that individuals, firms, and societies should invest in
e d u c a t io n a n d t ra in in g t o e n h a n c e h u m a n c a p it a l. Th is in ve s t m e n t in c re a s e s
in d ivid u a ls ' p ro d u c t ivit y a n d e a rn in g p o t e n t ia l o ve r t im e
2. Ac c u m u la t io n a n d D e p re c ia t io n :
Sim ila r t o p h ys ic a l c a p it a l, h u m a n c a p it a l c a n b e accumulated t h ro u g h
le a rn in g a n d e xp e rie n c e , a n d it depreciates o ve r t im e if n o t m a in t a in e d o r
u p d a t e d . Co n t in u o u s le a rn in g a n d s k ill d e ve lo p m e n t a re e s s e n t ia l t o
m a in t a in in g a n d in c re a sin g h u m a n c a p it a l.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Hu m a n Ca p it a l Th e o ry: Ke y P rin c ip le s
3. Life t im e Le a rn in g a n d Ad a p t a t io n :
This theory emphasizes on continuous le a rn in g a n d a d a p t a t io n t h ro u g h o u t
in d ivid u a ls ' c a re e rs. As a re s u lt o f ra p id ly c h a n g in g e c o n o m y, in d ivid u a ls m u s t
c o n t in u a lly u p d a t e a n d e xp a n d t h e ir s k ills a n d k n o w le d g e t o re m a in
c o m p e t it ive a n d re le va n t in t h e la b o r m a rk e t .
4 . Re t u rn o n In ve s t m e n t (RO I):
Co s t s o f e d u c a t io n a n d t ra in in g a re e va lu a t e d a g a in s t t h e p la n n e d re t u rn s in
t e rm s o f in c re a s e d productivity , h ig h e r earnings , a n d e c o n o m ic growth .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Hu m a n Ca p it a l Th e o ry: Ke y P rin c ip le s

5. J o b Ma t c h in g a n d Sk ill Ut iliza t io n :

This theory also suggests that individuals seek job opportunities that allow
t h e m t o u t ilize a n d fu rt h e r d e ve lo p t h e ir s k ills e ffe c t ive ly.

Em p lo ye rs a ls o b e n e fit fro m m a t c h in g in d ivid u a ls ' s k ills w it h jo b

re q u ire m e n t s , le a d in g t o in c re a s e d productivity a n d o rg a n iza t io n a l
performance .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Hu m a n Ca p it a l Th e o ry: Ma n a g e ria l Ap p lic a t io n s

1. Re c ru it m e n t a n d Se le c t io n :

Individuals' education, skills, and experience contribute to their productivity

a n d va lu e t o t h e o rg a n iza t io n .

HRM c a n u s e t h is in s ig h t t o d e ve lo p m o re e ffe c t ive re c ru it m e n t a n d s e le c t io n

p ro c e s s e s t h a t fo c u s o n identifying c a n d id a t e s w it h re le va n t h u m a n c a p it a l
a t t rib u t e s . Th is m ig h t in vo lve a s s e s sin g c a n d id a t e s ' educational b a c k g ro u n d ,
t e c h n ic a l skills , a n d w o rk experience t o e n s u re a g o o d fit w it h t h e
o rg a n iza t io n 's n e e d s .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Hu m a n Ca p it a l Th e o ry: Ma n a g e ria l Ap p lic a t io n s

2. Tra in in g a n d D e ve lo p m e n t :

Investing in employees' education and skill development to enhance their

p ro d u c t ivit y a n d p e rfo rm a n c e is im p o rt a n t .

HRM c a n u s e t h is p rin c ip le t o d e s ig n a n d im p le m e n t t ra in in g a n d
d e ve lo p m e n t p ro g ra m s t h a t h e lp e m p lo ye e s a c q u ire new skills , u p d a t e
e xis t in g o n e s , a n d d e ve lo p competencies a lig n e d w it h organizational goals .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Hu m a n Ca p it a l Th e o ry: Ma n a g e ria l Ap p lic a t io n s

3. P e rfo rm a n c e Ma n a g e m e n t :

Employees' productivity and performance are influenced by their

k n o w le d g e , sk ills, a n d a b ilit ie s.

HRM c a n a p p ly t h is p rin c ip le t o d e sig n p e rfo rm a n c e m a n a g e m e n t

syst e m s t h a t e ffe c t ive ly a sse ss a n d re w a rd e m p lo ye e s b a se d o n t h e ir
contributions t o o rg a n iza t io n a l g o a ls.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
Hu m a n Ca p it a l Th e o ry: Ma n a g e ria l Ap p lic a t io n s

4 . Co m p e n s a t io n a n d Re w a rd s :

HRM should develop compensation and rewards systems that recognize

a n d incentivize e m p lo ye e s fo r t h e ir c o n t rib u t io n s t o o rg a n iza t io n a l
su c c e ss.

Th is m ig h t in vo lve tying c o m p e n sa t io n a n d re w a rd s t o e m p lo ye e s' sk ills,

p e rfo rm a n c e , a n d p o t e n t ia l fo r fu t u re d e ve lo p m e n t , t h e re b y e n c o u ra g in g
continuous improvement a n d investment in h u m a n c a p it a l.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
So c ia l Exc h a n g e Th e o ry:

Social exchange theory suggests that individuals engage in relationships

a n d in t e ra c t io n s b a se d o n t h e principle of reciprocity , w h e re t h e y se e k t o
m a xim ize re w a rd s a n d m in im ize c o st s.

Th is t h e o ry is re le va n t t o b o t h O B a n d HRM fo r u n d e rst a n d in g e m p lo ye e -
e m p lo ye r re la t io n sh ip s, o rg a n iza t io n a l c o m m it m e n t , a n d e m p lo ye e
en g ag em en t.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
So c ia l Exc h a n g e Th e o ry: Ke y P rin c ip le s
1. Mu t u a lit y o f In t e re s t :
Individuals engage in social interactions and relationships because they
p e rc e ive m u t u a l b e n e fit s o r re w a rd s fro m d o in g so . Th e se b e n e fit s m a y
in c lu d e e m o t io n a l su p p o rt , c o m p a n io n sh ip , re so u rc e s, o r st a t u s.
2. Co s t s a n d Be n e fit s :
In d ivid u a ls a sse ss t h e c o st s a sso c ia t e d w it h in ve st in g time , effort , o r
resources in a re la t io n sh ip a g a in st t h e b e n e fit s o r re w a rd s t h e y e xp e c t t o
re c e ive in re t u rn .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
So c ia l Exc h a n g e Th e o ry: Ke y P rin c ip le s
3. Co m p a ris o n Le ve l (CL):

Individuals have a comparison level that represents their expectations

a b o u t t h e o u t c o m e s t h e y sh o u ld re c e ive in a re la t io n sh ip b a se d o n t h e ir
p a st e xp e rie n c e s a n d so c ia l n o rm s.

If t h e a c t u a l outcomes surpass the comparison level , in d ivid u a ls p e rc e ive

t h e re la t io n sh ip a s rewarding .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
So c ia l Exc h a n g e Th e o ry: Ke y P rin c ip le s
4 . Co m p a ris o n Le ve l fo r Alt e rn a t ive s (CLa lt ):
:

In d ivid u a ls a lso c o n sid e r t h e ir alternatives w h e n e va lu a t in g so c ia l

re la t io n sh ip s. Th e c o m p a riso n le ve l fo r a lt e rn a t ive s re p re se n t s t h e
o u t c o m e s in d ivid u a ls b e lie ve t h e y c o u ld a t t a in in a lt e rn a t ive re la t io n sh ip s o r
sit u a t io n s.

If t h e o u t c o m e s in a c u rre n t re la t io n sh ip e xc e e d t h o se in a va ila b le
a lt e rn a t ive s, in d ivid u a ls a re m o re likely to remain in t h e re la t io n sh ip .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
So c ia l Exc h a n g e Th e o ry: Ke y P rin c ip le s
5. Eq u it y a n d Fa irn e s s :
:

In d ivid u a ls st rive fo r e q u it y a n d fa irn e ss in so c ia l e xc h a n g e s. Th e y e xp e c t

t h a t t h e re w a rd s t h e y re c e ive fro m a re la t io n sh ip sh o u ld b e p ro p o rt io n a l t o
t h e c o st s t h e y in ve st .

P e rc e ive d inequity c a n le a d t o fe e lin g s o f d issa t isfa c t io n a n d m a y p ro m p t

in d ivid u a ls t o a d ju st t h e ir b e h a vio r o r se e k a lt e rn a t ive re la t io n sh ip s.
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
So c ia l Exc h a n g e Th e o ry: Ma n a g e ria l Ap p lic a t io n s
1. Em p lo ye e -O rg a n iz a t io n Re la t io n s h ip :
:

Em p lo ye e s e n g a g e in re c ip ro c a l re la t io n sh ip s w it h t h e ir o rg a n iza t io n s,
w h e re t h e y exchange e ffo rt s, c o n t rib u t io n s, a n d lo ya lt y fo r va rio u s rewards
a n d benefits .

HRM c a n a p p ly t h is in sig h t t o fo st e r p o sit ive e m p lo ye e -o rg a n iza t io n

re la t io n sh ip s b y o ffe rin g fair compensation , opportunities fo r c a re e r
d e ve lo p m e n t , a n d a supportive w o rk environment .
In t r o d u ct io n t o Fu n d a m e n t a l
HRM & O B Th e o r ie s
So c ia l Exc h a n g e Th e o ry: Ma n a g e ria l Ap p lic a t io n s
2. O rg a n iza t io n a l Cit ize n s h ip Be h a vio r (O CB):
:

Em p lo ye e s e n g a g e in d isc re t io n a ry b e h a vio rs t h a t g o b e yo n d t h e ir fo rm a l jo b
re sp o n sib ilit ie s w h e n t h e y p e rc e ive re c ip ro c it y in t h e ir re la t io n sh ip s w it h t h e
o rg a n iza t io n .

HRM c a n le ve ra g e t h is in sig h t t o p ro m o t e O CB b y fo st e rin g a su p p o rt ive

o rg a n iza t io n a l c u lt u re t h a t va lu e s teamwork a n d collaboration a n d p ro vid in g
opportunities fo r e m p lo ye e s t o c o n t rib u t e t o t h e o rg a n iza t io n 's su c c e ss in
m e a n in g fu l w a ys.