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differs according to their impact on these motivation components. Pay system differ most in their impact on instrumentality-the perceived link between behavior and pay. Valance of pay outcomes remains the same under different pay system. Expectancy perceptions often have more to do with job design and training than pay system.
Equity Theory- Equity theory emphasis in pay structure of employee remuneration. It suggests that an employee who perceives inequity in his or her rewards seeks to restore equity. When employee perceives inequity it can result in lower productivity, higher absenteeism or increase in turnover.
Remuneration system needs to meet three types of equity which directly impact motivation, commitment and performanceo Internal Equity- Perceived fairness of pay differentials among different jobs with organization. o External Equity- Employees perception of fairness of remuneration relative to those outside organization. o Individual Equity- Employees perception of pay differentials among individuals who hold identical job in the same organization. Agency Theory- Focuses on the divergent interests and goals of the organizations stakeholders and the way that employee remuneration can be used to align these interests and goals. This theory talks about two important stakeholder i.e. employer and employee. Employer plays a role of principal whereas employee plays a role of agent. Remuneration paid to employee (agent) is called agency cost. Agent wants high agency cost whereas principals want to minimize it. Agency theory says that principal must choose a contracting schemes that helps align the interest of agent with the principals own interest.