In the current highly competitive work environment, the aim of business organizations is to recruit, retain, and stimulate the employees to provide quality performance. The rationale is that employees are the key resource of an organization and failure or success of an organization largely depends on the capacity of employers to attract, reward, and retain competent and talented employees. As Michael, Prince, and Chacko (2016) elucidate, the willingness of employees to remain on the job is directly dependent on the prevailing compensation packages. Therefore, to ensure optimal employee performance, organizations need to evaluate and implement appropriate ways of rewarding the workers. Michael and colleagues (2016) argue that the degree to which employees are satisfied with their job, along with their readiness to stay in an organization is a function of the reward system and compensation packages in the organization. In this light, various theories have been developed to guide employee compensation, and the current paper will discuss Vroom’s expectancy theory and the equity theory, along with how the two theories impact compensation and the work environment.
Two Theories that Impact Compensation
Victor Vroom’s expectancy theory centers on the relationship between rewards and behavior (Lăzăroiu, 2015). The theory suggests that an individual’s effort expenditure will be determined by his/her expectations that an outcome would be achieved and the degree of significance put on an outcome within the individual’s mind. The model is generally identified as expectancy theory (sometimes called the VIE theory), with the letters indicating the value for valence, instrumentality, and expectancy components, in that order (Lăzăroiu, 2015). Expectancy is the individual’s beliefs about his/her capability to perform a given behavior. Instrumentality is the beliefs of the person about the probability that performing a behavior will result in a number of outcomes, while valence is how negatively or positively an individual values these outcomes. In essence, expectancy theory mainly depends on extrinsic motivators, which explain why some behaviors are exhibited in the workplace (Lăzăroiu, 2015). Therefore, expectancy theory implies that when people are deciding on behaviors to perform, they consider the model’s three components linked to each behavior and make a choice of the behavior that most likely leads to positive outcomes.
Conversely, Stacy Adam’s equity theory postulates that employees are motivated by equality. Employees who perceive inequality in their rewards become less motivated and seek to restore equity, through activities such as turnover (Liao, Martocchio, & Joshi, 2010). Therefore, equity theory advocates for equity in the pay structure of employees’ remuneration. According to equity theory, the perceptions of employees regarding how they are being treated by their employers are of principal importance to them (Liao et al., 2010). When employees feel there is inequality in compensation, it can lead to reduced productivity, increased turnover, and higher absenteeism.
How each of the Theories can Motivate Employees
As outlined in Vroom’s expectancy theory, instrumentality could be the belief of the employee that if he/she puts in more efforts, the outcomes are likely to earn him compensation which can be in terms of promotion, salary increment or some form of recognition (Lăzăroiu, 2015). Sometimes instrumentality will depend on employee trust and company policies. In this regard, another real example of Vroom’s expectancy theory is where a worker is promised a promotion as a result of achieving a certain target. Unfortunately, if the promise is not kept, as a consequence his or her trust in the boss and the organization is derailed. In particular, it is the value that the employee attaches to the performance outcome that matters. For instance, the expectancy of a telesales person would be his or her certainty that the more calls made, the more the sales will materialize (Lăzăroiu, 2015). If he or she has a feeling that more sales will not be the effect, then he or she will not put in more effort. The instrumentality is that higher sales will translate into more commission while valence is the value he/she relates with these commissions.
Similarly, equity theory can be used to motivate employees. In particular, understanding equity theory helps organizational managers to appreciate that improving one employee’s terms and conditions of work can generate more problems than it otherwise attempted to fix, especially is the change is considered by other workers to upset the equity of their own situations (Liao et al., 2010). Equity theory informs organizational managers that workers view themselves in relation to their surrounding team, system, and environment. Therefore, to motivate employees, compensation packages should be designed in a manner that indicates both vertical and horizontal equity. For instance, employees who do similar jobs should be paid the same wage and salary (Liao et al., 2010). Likewise, those with the same level of education and experience should be compensated equally.
Types of Compensation
Compensation packages constitute some basic features that aim to make employees satisfied with their work. While there are many types of compensation, salaries, wages, incentives, promotion, recognition, bonuses, and commissions are common with many organizations (Michael et al., 2016). All the types of compensation have a significant impact on the performance of employees. However, to avoid controversy and wrong perception, the compensation system should be clearly communicated to all employees, and entail job measurements that will drive the much-needed performance. Besides, all compensation types adhere to theory. For instance, equity theory calls on organizations to design compensation packages in line with the principle of equality. In this light, salaries and wages are often equal for all employees in the same work position (Michael et al., 2016). However, most types of compensation are based on expectancy theory. When employees are compensated through incentives, promotion, recognition, bonuses, and commissions, it stimulates hard work and improved performance among employees.
References
Lăzăroiu, G. (2015). Work motivation and organizational behavior. Contemporary Readings in Law and Social Justice, 7(2), 66-75.
Liao, H., Martocchio, J. J., & Joshi, A. (Eds.). (2010). Research in personnel and human resources management. Bingley, UK: Emerald Group Publishing Limited.
Michael, B., Prince, A. F., & Chacko, A. (2016). Impact of compensation package on employee retention. Clear International Journal of Research in Commerce & Management, 7(10), 36-40.
