CHAPTER 12

RECOGNIZING EMPLOYEE CONTRIBUTIONS

WITH PAY
Ms. Fatima Shamim
Reinforcement Theory
Controlling the consequences of the behaviour through:

■ Rewards

■ Punishments

(To reinforce desired behaviour or extinguish unwanted behaviour)

Ms. Fatima Shamim

Agency Theory
■ Professional relationships and self-interest in business organisations
■ The relationship occurs between two parties:
– Principals
– Agents
One party (principal) determines the work and which another party (agent) performs or
makes decisions on behalf of the principal
■ Assumptions:
Agents are:
– Self-interested
– Boundedly rational
– Different from principals in their goals and risk-taking preferences
■ Agency problem – it occurs when one party (a principal) employs another (an agent) to
make decisions and act in their stead.
Ms. Fatima Shamim
Expectancy Theory
How much people want a particular outcome and how likely they think they are

going to achieve it

Efforts Performance Outcomes Rewards

Ms. Fatima Shamim

Expectancy Theory (Contd..)
 Effort  Performance - “Expectancy”

 Expectancy is the belief that one's efforts will result in

 attainment of desired performance goals. 

 Performance  Outcome - “ Instrumentality”

 How much instrumental your performance is to result into a given outcome.

 Instrumentality is the belief that a person will receive a reward if the performance
expectation is met. This reward may present itself in the form of a pay increment,
promotion, recognition or sense of accomplishment. 

Ms. Fatima Shamim

Expectancy Theory (Contd..)
Outcomes  Rewards - “Valance”

 How much an outcome leads to the rewards.

 Valance is characterized by the extent to which a person values a given

outcome or reward. This is not an actual level of satisfaction rather the

expected satisfaction of a particular outcome.

 The valence refers to the value the individual personally places on the

rewards
Ms. Fatima Shamim
Pay Programs
■ Merit pay

■ Individual incentives

■ Profit sharing/ ownership

■ Gain sharing

■ Group incentives/ Team Awards

■ Managerial & Executive pays

Ms. Fatima Shamim

Thank You
Ms. Fatima Shamim