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Expectancy Theory
People are motivated by intrinsic and extrinsic outcomes they desire. People will only be motivated if outcome is possible. People will only be motivated if outcome is contingent.
Equity Theory
Internal equity
Comparison of my input / reward ratio with that of similar others. Employees may seek to address imbalance by changing their inputs. Fairness of pay differentials between different jobs in the organization can be established by job ranking, job classification, point systems and factor comparisons.
External equity
Fairness of organizational compensation levels relative to similar jobs in other organizations.
Equity Theory
Fairness about pay differentials among individuals who hold the same job can be established by using:
Seniority-based pay systems that reward longevity. Merit-based pay systems that reward employee performance. Incentive plans that allow employees to receive part of their compensation based on their job performance. Skills-based pay systems. Team-based pay plans that encourage cooperation and flexibility in employees.
Skills / knowledge-based
Pay the person (not the job) 62% of F1000 firms used some type of skill based pay in 1999
Cost
Job duties are stable. Skills are generic. Employees move up through the ranks over time. Jobs are fairly standardized within the industry.
Discounts individual ability. Discourages lateral movement. Tends to be bureaucratic, mechanistic, and inflexible. Employees perceptions of equity are more important than market or point data.
Individual-based Compensation
Individual-based compensation works when:
The firm has a relatively educated workforce. Employees often do different jobs Technology changes frequently. Employee participation and teamwork are encouraged. Opportunities for upward mobility are limited. Opportunities to learn new skills are present. The costs of employee turnover and absenteeism in terms of lost production are high.
Pricing Jobs
First conduct job analysis
Qualifications KSAs
Non-quantitative methods
Job Ranking (create hierarchy of jobs) Job Classification (create groups of similar jobs)
Quantitative Methods
Point factor systems Compare compensable factors
Market pricing
Compensable Factors
Characteristics in the job that the organizational values and that help achieve its objectives. Hay Factors
Know-how Problem solving Accountability
Pricing Jobs
Line of sight is the perceived link between individual behavior and the reward.
Individual Merit
Attraction Motivation Skill Development Culture Structure Cost Good for high performers Good line of sight Learn skills that lead to rewarded performance Performance oriented, job focused Individual and independent jobs Depends on the size of the awards
Team Incentives
Attraction Motivation Skill Development Culture Structure Cost Good if team performs well Moderate line of sight Encourages team skills Team focused Team-based and integrated High if significant awards given
Organizational Plans
Attraction Motivation Skill Development Culture Good if organization performs well Weak line of sight Encourages broad understanding of business Business involvement
Structure
Cost