Behavioral wage theories and their impact on compensation policies
Need fulfillment theory
This theory was the idea of Vroom. Vroom suggested two models of need fulfillment theory, the multiplicative model, and the substantive model. In a substantive model, work fulfillment destructively connects to the extent of discrepancy between personal wants and the degree to which work satisfy those wants (Martocchio, 2011). According to this model, the bigger the differences, including all wants, the less the fulfillment and vice versa.
The multiplicative model focuses on the significance of needs by multiplying the intended amount of want satisfaction and the significance of wants to an employee. In this situation, the products of every want combine to amount to a complete measure of work fulfillment (Henderson, 1994). When an employee’s job and job status yield positive results, then job satisfaction occurs.
Impact on compensation
Physiological needs such as starvation and refuge are the basic needs that employees want to first satisfy when they get a job. Companies gratify these desires by compensating their workers. Thereafter, the employee feels the need to satisfy other needs such as safety and security. If the need is not satisfied, the employee will behave in certain ways until his or her needs are fulfilled (Cascio, 2003).
If the need-fulfillment theory exists, it has significant impacts on compensation policies. It implies that workers get the impetus to perform well in an organization when they receive their financial needs if their wages are adequate to buy the basics of life. It is crucial that an employer recognizes the needs of the employee and use them as drivers of motivation (Deb, 2006).
Reinforcement theory
The reinforcement theory focuses on the connection between behavior and its effects by acting on the conduct of employees through rewards and punishments. Behavior modification is the technique that reinforcement uses to transform the conduct of employees. Behavioral transformation works under the concept of law of effect, which claims that individuals tend to repeat actions that receive constructive reinforcements, and actions that do not receive reinforcements do not reoccur. Reinforcement can make specific actions reoccur or withdrawn (Griffin & Moorhead, 2009). An organization can use reinforcement in four approaches to modify the conduct of employees: positive and negative reinforcement, punishment, and extinction.
Positive reinforcement occurs when an organization rewards an employee following good conduct. For instance, people who keep time and go the extra mile in work receive instant applause. As a result, there is a possibility that the employees will repeat the same good behavior, therefore improving the overall performance of the company. Research indicates that proper reinforcement facilitates perfecting production.
Reinforcements like appreciation and notice are important as monetary gifts. In reality, factors rather than money attract many employees. The most cherished rewards are applause and support from the management. Negative reinforcement is the elimination of repulsive effects when conducts progress. In this case, employees know the right conducts by evading bad circumstances (Murray, Poole &Jones, 2008). For example, a manager will cease rebuking a worker for lateness when the worker begins to keep time.
Punishment is the sentence for taking improper actions. It occurs when a worker takes detrimental actions. An employer may criticize an employee for running a certain project wrongly. The employer assumes that the bad results will act as a punishment and decrease the reoccurrence of such mistakes (Ceriello, 1991). The application of punishment in companies is contentious and disapproved because it does not show the right conduct.
Extinction is the removal of a positive reward, implying no reinforcement of actions and low chances of actions recurring later. If an employee does not receive praise for his bad actions, he will start to discover that his actions are not bringing good results. Thus, the employee will stop his actions since they receive no reinforcement.
Instead of punishment, managers can influence the behavior of workers through positive reinforcement. Some organizations perceive punishment to be a good solution in administering change, however; research shows that rewards signify the best alternative. In modern organizations, managers can apply the reinforcement theory to control the actions of their employees. They can reinforce actions every time they happen which is continuous reinforcement, or they can reinforce erratically which is partial reinforcement. Today, many organizations use continuous reinforcement methods by giving money and bonuses to employees.
Employees receive bonuses in form of prizes when employees perform the right actions. LDF Sales & Distributing Company uses this strategy to reduce inventory deficits. Employees obtain prizes when they cross-check the quantity of shipment. This approach has reduced inventory deficits by half and redeeming the company thousands of dollars (Deb, 2006).
With partial reinforcement, the right action receives reinforcement adequately to ensure that workers know that good actions are worth repeating, though they are not rewarded when they are done. Continuous reinforcement produces good performances, especially when executing new behaviors. However, studies show that partial reinforcement is efficient for sustaining permanent actions.
A good example of a company that applied the reinforcement theory to improve the behavior of employees is the WD-40 company. The company motivated employees to discuss their setbacks so that the company could insight from such failures; employees received prizes for sharing their experiences. The positive reinforcement encouraged employees to share their encounters and this facilitated the advancement of this company (Parker &Craig, 2008).
Impact on compensation
The reinforcement theory enables managers to comprehend and control the behavioral change of employees. Reinforcements varying from bonuses to applause play a significant role in helping a person to continue performing well. When good performers receive monetary awards, they are motivated to sustain their successful output (Murray, Poole &Jones, 2008).
The reinforcement theory will contribute significantly in bringing positive change in the company. This will occur if an employee receives compensation for engaging in acceptable behavior. The more an organization rewards employees for their good deeds, the more often they will repeat the same good actions. Therefore, the structure of compensation policies should be able to bring positive change to employees to enhance performance.
Expectancy theory
Expectancy theory claims that inspiration relies on personal mental expectations about their capability to work and obtain good compensation. Expectancy theory is not about knowing the forms of wants, but with the thinking strategies that employees apply to receive prizes. This theory relies on the connection between personal work, probability of success, and the need for results after a successful performance (Parker &Craig, 2008).
The effort-performance (E>P) expectancy is the possibility that applying effort in work will result in good outcomes. For this outcome to be effective, a person must have the potential, good skill, required technology, and knowledge to operate.
The performance-outcome (P>O) expectancy focuses on the relationship between good work and expected results. If the expectancy is great, an employee will be greatly encouraged (Ceriello, 1991). Valence is the significance that employees attach to results. If the results from good work are not significant to the employee, enthusiasm will below. Similarly, if the results are significant to employees, inspiration will be high.
Expectancy theory has the potential to satisfy employees’ wants and objectives. A good manager can apply this theory to fulfill the wants of their employees and meet the objectives of the company (Murray, Poole &Jones, 2008). To enhance aggressiveness, managers can improve employee’s expectancy by knowing personal wants, giving the desired rewards, and guaranteeing employees have the potential and support required to work properly and achieve their expected results.
Impact on compensation
The solution to a motivating compensation method according to the expectation theory is to acknowledge that employees will receive compensation if, and only if, employers receive the required behavior. Excellent employees with great expectations think about the connection between compensation and performance.
If a company wishes to apply compensation to increase performance, they must ensure employees are accountable for their success. Also, they must describe and determine work excellence, and relate reward outcomes to expected performance. Performance evaluation processes link to compensation through rating structure (Griffin & Moorhead, 2009). Strategies concerning such structures suggest that excellent workers can expect regular and substantial compensation amounts, while low performers, can expect occasional and little, or no compensation.
Justice theory
There are cases when worker’s motivation depends not only on their expectancies and by rewards they obtain, but also the prevalence of justice in their places of work. Justice theory suggests that employees are inspired to get justice in the rewards they obtain for their good work (Deb, 2006). If employees know that their rewards are the same as what others obtain for similar efforts, they will believe that justice is prevailing and will be inspired to perform better. When they realize they are not receiving fair rewards for their excellent performance, their morale will decrease.
Employees analyze justice by a proportion of inputs to outcomes. They contrast their work efforts and the rewards they receive from other employees in the company. Fairness occurs whenever the proportion of efforts and rewards is equal to the proportion of others doing the same work. Injustice exists when the input and output proportions are not comparable, for instance when a person with good skills and experience obtain the same payment as a new employee with less education and skills (Cascio, 2003).
Impact on compensation
The equity theory can be of significant importance in knowing the behavior after an unintended breach of justice. Understanding of equity theory expectations is helpful to a leader and is crucial in handling personal issues (Henderson, 1994). For example, proof concerning the impact equity issues can apply to theft and has substantial consequences for cutting down costs.
The equity theory is useful in forming compensation strategies. Good compensation policies should balance different inputs separately during work analysis procedures to produce the best inputs (Martocchio, 2011). Compensation levels have a close relationship with self-worth and self-belief. Individuals who receive high compensation feel they are of great significance to the company and have skills of performing well.
Good compensation makes employees have a perception of justice and justice denotes faith and regarding highly of workers. According to equity theory, high compensation symbolizes sizeable outcomes that should encourage employees to change their inputs upward for good performance
References
Cascio, W.F. (2003). Managing Human Resources: Productivity, quality of work life, profits. (6th Ed). New York: McGraw-Hill.
Ceriello, V.R. (1991). Human Resource Management Systems: Strategies, tactics and techniques. New York: MacMillan.
Deb, T. (2006). Strategic Approach to Human Resource Management. New Delhi: Atlantic & Distributors.
Griffin R. W., Moorhead G. (2009). Organizational Behaviour: Managing People and Organizations. USA: Cengage Learning.
Henderson, R.I. (1994). Compensation Management: Rewarding performance. (6th Ed). New Jersey: Prentice-Hall.
Martocchio, J.J. (2011). Strategic Compensation: A Human Resource Management Approach. (6th Ed). New Jersey: Prentice-Hall.
Murray P., Poole D., Jones G. (2008). Contemporary issues in management and organisational behaviour. Australia: Cengage Learning.
Parker D., Craig M. (2008). Managing Projects, Managing People. Australia: Palgrave Macmillan.