Equity and Expectancy Theory

TL;DR

Equity and expectancy theories examine the fairness of the balance between contributions and rewards in compensation, as well as the role of individual perceptions in determining behavior and choices.

Transcript

let's take a look at equity and expectancy theory in compensation equity theory explains that an individual satisfaction with her his or her job is largely but not wholly determined by the person's perception of the fairness of the balance between contributions made by the individual and the rewards received from the organization to appreciate the ... Read More

Key Insights

• ⚖️ Equity theory focuses on perceptions of fairness in the balance between contributions and rewards in compensation.
• ❓ Expectancy theory considers individual perceptions of valence, instrumentality, and expectancy in determining behavior and choices.
• 🤨 Legislative constraints on pay raises may devalue the importance attached to monetary rewards.
• ❓ Effective administration of the human resource management system should establish a coherent linkage among valence, instrumentality, and expectancy.
• ✋ Reward systems unrelated to productivity can demotivate high performers and increase overall compensation costs.
• 🎚️ Policymakers should consider competitive and comparative levels of pay to prevent inequitable compensation practices.
• 🚱 Valuing monetary rewards does not negate the significance of other non-monetary rewards in compensating employees.

Questions & Answers

Q: What does equity theory in compensation focus on?

Equity theory in compensation focuses on an individual's perception of the fairness of the balance between their contributions and rewards from the organization. It examines how this perception affects job satisfaction.

Q: How does expectancy theory influence behavior in compensation?

Expectancy theory in compensation examines how individual perceptions affect behavior and choices. It considers the value attached to desired outcomes, the belief that rewards will be provided based on high performance (instrumentality), and the expectation of successfully achieving tasks that lead to rewards.

Q: What can weaken the success of a pay program according to equity and expectancy theory?

If any of the three links in the causal chain of valence, instrumentality, and expectancy is weak, the success of the pay program is reduced. For example, if employees do not believe the rewards will be provided based on high performance, their motivation may decrease.

Q: Why is it important for policymakers to consider competitive and comparative levels of pay?

Equity and expectancy theories mandate policymakers to consider competitive and comparative levels of pay because reward systems unconnected to productivity indicators can lead to poor workers staying and high performers becoming discouraged and leaving. This can result in increased compensation costs and inefficiencies.

Summary & Key Takeaways

• Equity theory focuses on an individual's perception of the fairness of the balance between their contributions and rewards in the organization.

• Expectancy theory examines how individual perceptions influence behavior and choices in terms of inducing desired outcomes.

• Both theories highlight the importance of considering valence, instrumentality, and expectancy in effectively administering the human resource management system and ensuring equitable and motivating reward systems.