This chapter examines the psychological and sociological theories of compensation.
No one questions the
interest of economists in wages. After all, wages are a form of
price. But why are psychologists and sociologists interested in
pay? What concepts link the interests of these behavioral scientists to
pay?
THE
EMPLOYMENT EXCHANGE
The
most obvious concept is the concept of exchange that economists,
psychologists, and sociologists use to study behavior. It is useful to
think of employment as involving an exchange of work for pay. Economists
treat employment as an exchange of time, effort, and ability for payment
in money or in kind. Psychologists view employment as an exchange of
behavior and attitudes for money and other sources of
satisfaction. Sociologists approach employment as a broad exchange of
tangible and intangible inputs and outputs among people whose behavior
influences one another and in turn influences and is influenced by other
segments of society. The
parties to the exchange most commonly are the individual and the
organization. If a union is involved, the exchange is between the union
and the organization. The parties do not have to have equal power, but
they must be able to influence the other party for the exchange to take
place.
Exchange is a double
input-output system in that each party is contributing something to the
exchange and in return is receiving something. The input of one party is
the output to the other, and vice versa.
The exchange process
works because it is perceptual: each party perceives the value of the
rewards received as greater than the contributions made. There can be
varying perceptions of the exchange by the two parties. However, the
exchange still takes place, because the two parties place different
values on what is being exchanged. Individuals enter the employment
exchange because they perceive their rewards as greater in value than
their contributions. Likewise, the organization enters the exchange
because what the organization receives has more value to it than what it
contributes.
Exchanges intended to be
short term tend to be carefully specified; continuing exchanges tend to
be less well defined. Most employment exchanges are expected to be long
term. Although in some exchanges hours of work and sometimes production
standards are specified on one side and pay rates and benefits on the
other; in most the definition of work is left to job descriptions,
supervision and work rules, and the definition of rewards to starting
pay. In most exchanges there are long-term expectations by both parties
that extra inputs will eventually result in extra rewards.
Often, what we have been
calling the employment exchange is referred to as an employment
contract. The contract is implicit except in the case of a labor
agreement. But in all cases compensation in its various forms (cash,
benefits, and non-financial rewards) is central to it. We assume that
neither party enters into or continues in the employment exchange unless
it perceives that the rewards are equal to or exceed the required
contributions. Logically, the exchange includes contributions (anything
provided that is recognized and considered relevant), rewards (anything
received that is recognized and considered relevant), a comparison
process (comparing rewards with contributions and with some standard),
and results (attitudes and behavior). Although it is possible to study
the employment exchange in terms of rewards, contributions, comparison
standards, and results pertinent to both parties, our major focus is on
the rewards to employees.
Required
Employee Behaviors
Although
the employment contract usually leaves the definition of work to job
descriptions, supervision, and work rules, it is useful to specify the
kinds of behavior organizations require from employees. Organizations
require that individuals (1) join and remain with the organization
(membership), (2) carry out job assignments dependably, (3) achieve
organization objectives beyond the job assignment through innovative and
spontaneous behaviors, (4) cooperate with others, (5) protect the
organization against disaster, (6) make creative suggestions, (7) carry
out self-training, and (8) create a favorable climate.
Unfortunately, organizations appear to believe that they obtain all
these behaviors merely by hiring the employee. Although compensation
could be used to encourage all these behaviors, it typically
concentrates on the first two. As we will see, organizations would be
wise to focus separately in compensation administration on attraction,
retention, and performance; it can obtain other specific behaviors
through compensation policies and programs.
Perhaps the most explicit
statement of the distinction between membership and performance
behaviors required by organizations and the quite different sources of
these behaviors was made by March and Simon. They
carefully distinguish the motivation to acquire and keep organizational
membership (their term is motivation to participate) from
productivity (the motivation to perform). Membership motivation
results from a favorable inducements-contributions balance. That is,
applicants must perceive that what they get from the organization at
least balances what they must give to it. Employees must perceive a
continuing favorable balance if they are to remain members. The
motivation to perform represents a much more complex psychological
contract between the individual and the organization involving perceived
alternatives, perceived consequences of these alternatives, and
individual goals.
Organizations have no
choice but to provide membership motivation if they wish to remain
organizations. But if providing motivation to perform is too costly or
too much trouble, the organization may choose other routes to
organizational goals, such as designing jobs so that prescribed job
performance is sufficient.
MOTIVATION
THEORY
The most
visible contribution of behavioral scientists to compensation theory is
motivation theory. Motivation theory seeks
to explain all kinds of motivated behavior in all kinds of situations,
including behavior in organizations. In the following discussion of
motivation theory, we will argue that some theories seem to fit better
with organization-required behaviors, especially membership and
performance.
Compensation
administration is an application of motivation theory. For this reason,
motivation theory can be considered a form of compensation
theory. Although motivation is complex and much remains to be learned
about it, enough may be known to guide organizations in designing and
managing compensation programs.
Most behavior is in some
sense motivated. People are strongly influenced by their environment.
This means that organizations can influence people’s behavior by
changing environments and rewards. But motivation is not the sole
determinant of behavior. Ability and knowledge of what one is supposed
to do combine with motivation in determining behavior in organizations.
Also, an organization’s tasks vary in their requirements. Thus
motivation can make little or much difference in performance, depending
on the task.
Psychologists studying
motivation have focused on two psychological processes: arousal and
choice. The first is concerned with why people do anything at
all. The second involves the choices they make in what to do. A
similar way of classifying motivation theory is to distinguish content
and process theories. Content theories focus on the factors that
motivate behavior. Process theories explain how these factors operate.
CONTENT
THEORIES
Content or
arousal theories center on needs or drives. Several physiological and
social needs have been identified and studied. Need classifications have
been offered. A need for competence in mastering the environment
is supposedly aroused when individuals are faced with new, challenging
situations; it dissipates after mastery. Closely related are
curiosity or activity needs: people need and enjoy a
stimulating environment, but they differ on this need and become adapted
to certain levels of stimulation.
The need for
achievement and the work of McClelland on it are well known.
Individuals have been found to differ in their need for achievement. The
need can be increased by training. People with a high need for
achievement prefer moderate risks and immediate feedback and enjoy doing
tasks for a sense of accomplishment. Productivity is posited to be
related to this need.
A need for affiliation
has been suggested but not carefully studied. There may be an innate
need for contact and a tendency for people to congregate during a
crisis. Separately identifying this need appears to be a problem.
A need for power
has been suggested as a requirement for success in organizations.
Effective managers may have a high need for power.
One problem with
predicting behavior from individual needs is that people seem to have
differing degrees of needs at different times of their
lives. Classifications of needs can be considered a response to this
finding.
Maslow’s hierarchy of
needs represents the first major attempt to classify needs that are
relevant to organizational behavior. His
classification, physiological, safety, belonging, esteem, and
self-actualization, is well known. Maslow argues that these needs
constitute a hierarchy. Most normal people move upward in the hierarchy
as lower level needs are satisfied. Thus, the greater the fulfillment of
a particular need, the less it is a motivator. Because in American
society the first two needs are presumably satisfied, higher-order needs
should be better motivators. Empirical tests of the theory have not
supported the categories, their order, or the suggestion that one need
must be satisfied before the next one is activated. But the implications
of the theory that there are higher-order as well as lower-level needs
and that different people want different things were major
contributions.
Alderfer’s ERG theory
postulates three categories of needs: existence, relatedness, and
growth. Although this classification also
represents a hierarchy, the theory does not state that one need is more
important than another or that only unsatisfied needs arouse
behavior. All three motives may be working to some degree at one time,
and the growth needs may increase with satisfaction. Although empirical
data seem to fit this classification better than Maslow’s, little
research has been done to test the theory.
McGregor’s theory
X-theory Y and Herzberg’s motivators
and hygienes flow from Maslow’s higher-
and lower-order needs. The empirical evidence does not support
Herzberg’s conclusion that only the motivators provide job satisfaction
and motivated employees. Hygienes and motivators don’t operate in the
same way for everyone. Moreover, his results are influenced by his
method of data collection. But Herzberg’s work contributed to an
understanding of the conditions that lead to job satisfaction and the
reasons that different people are motivated by different rewards.
An evaluation of the
motivation theories based on needs would probably focus on their
limitations. Empirical studies have provided only modest support for
them, and the proportion of the variance in performance explained has
been low.
Another content
motivation theory is the job characteristics model. In
this model characteristics of the job (skill variety, task identity,
task significance, autonomy, feedback) cause psychological states that
in turn cause motivation and performance. The model suggests that
enriched jobs motivate people with high growth needs. Empirical tests of
the model suggest that job enrichment affects satisfaction more than
performance and quality more than quantity. Also, growth needs affect
satisfaction more than performance.
Consistency theory
suggests that people choose jobs and behaviors based upon the
consistency between their self-image and the demands of the job or the
expectations of friends. Arousal is
caused by inconsistency.
A final content theory
suggests that social cues stimulate behavior as a result of (1) the
presence of others, (2) wishes to be evaluated favorably by others, and
(3) desires to conform to the opinions of co-workers. Empirical work
shows that social cues do affect performance.
PROCESS THEORIES
Process or choice theories explain the operation of motivation, or the
factors that influence an individual to choose one action rather than
another. Process theories can be subdivided into cognitive and
non-cognitive approaches. Cognitive theories see behavior as
involving some mental process. Non-cognitive theories see
behavior as caused by environmental contingencies.
COGNITIVE
THEORIES
The major cognitive theories are equity theory, goal-setting
theory, and expectancy theory. All of them focus on perceptions of the
outcomes that flow from behavior.
Equity Theory
This theory suggests that motivated behavior is a form of exchange
in which individuals employ an internal balance sheet in determining
what to do. It predicts that people will choose the alternative they
perceive as fair. The components of equity theory are inputs, outcomes,
comparisons, and results. Inputs are the attributes the individual
brings to the situation and the activities required (investments and
costs). Outcomes are what the individual receives from the
situation. The comparisons are between the ratio of outcomes to inputs
and some standard. Results are the behaviors and attitudes that flow
from the comparison. In Adams’s
application of the theory to organizations, the comparison is with
co-workers. But other standards of comparison, including oneself in a
previous situation, seem equally probable. The idea is that people look
at their inputs and the payoff they receive and compare the latter with
what they think their comparison standard is getting. If a state of
equity exists,
that is, if they perceive
the situation as in balance (fair), then they are comfortable with the
situation and no change is predicted to occur.
When, however, inputs are
seen as too great relative to outcomes, under-reward inequity is
experienced. To remove this inequity people can (1) reduce their inputs
(actually or perceptually), (2) increase their outcomes (actually or
perceptually), (3) change their comparison standard, or (4) leave the
situation. If outcomes are too great compared with inputs, a state of
over-reward inequity exists. To correct this situation the individual
may (1) increase inputs, (2) decrease outcomes, or follow step 3 or 4
above.
Empirical tests of equity
theory have in general accorded with predictions regarding over and
under reward. In addition, perceptions of inequity have been shown to be
related to absenteeism and turnover. Reduced
performance following feelings of inequity resulting from lower
compensation for the same job has also been reported.
But equity theory, at
least as stated by Adams, contains several unsolved problems. Little is
known, for example, about how people select a comparison standard. It is
also difficult to define inputs and outcomes. How people combine inputs
and outcomes and how these factors change over time are likewise
unexplained.
Also, the definition of
equity employed by individuals has been challenged. Salaried employees
have been found to prefer equality rather than equity; hourly employees
prefer equity. In some cases, people
follow a winner-take-all strategy. Finally, equity ratios and resolution
strategies have been found to vary with culture, family orientation, and
personal values.
Another version of equity
theory was developed by Elliot Jaques of Great Britain. Jaques’ theory
of equitable payment holds that individuals have an intuitive knowledge
of their capacity, the level of their work, and the fairness of their
pay. When their capacity is properly utilized in their work and when
their pay matches their level of work, they achieve psychological
equilibrium. When, however, pay is less
or more than that justified by the level of their work, individuals
perceive inequity and react to it.
Jaques believes that
level of work can be measured by determining an individual’s time span
of discretion �
the maximum period of time the individual’s work is permitted to go
unreviewed. He reports measuring time span of discretion at all levels
of work and measuring felt fair pay, the amount of pay the individual
perceives as fair for his or her level of work. Using the theory
requires measuring the individual’s level of work and providing the
proper pay for that level of work. Equity is achieved when felt fair pay
equals actual pay or deviates from it by less than minus 10 percent or
plus 20 percent.
Measuring time span of
discretion is the major problem with the theory. Although Jaques,
however, reports no difficulty and has offered several methods of doing
this. His present method is apparently that developed by Atchison,
asking supervisors the duration of the most extended task assigned to
subordinates. Atchison and Richardson
were able to measure both time span of discretion and felt fair pay,
but others question the stability and measurability of both of these
concepts.
A number of studies of
equity in operating organizations have been made by the authors. These
studies use concepts from both streams of equity theory. An instrument
has been developed that reliably measures the perceived importance of a
rather large number of potential rewards and contributions. It also
measures the perceived discrepancy between the existing rewards and
contributions and respondent preferences. In addition, it measures
comparison standards and preferred response to perceived inequity.
The rationale of these
studies has been to test the validity of equity theory as an aid in
designing organization compensation programs. Although they are subject
to the limitations of survey research, the results support equity theory
and its components and yield suggestions for improving compensation
programs. People can and do perceive a large number of inputs and
outcomes as relevant. They can compare what exists and what they
want. Both the rewards desired and contributions seem to be culturally
based and to vary occupationally and demographically. From the studies
it seems useful to classify outcomes as (1) extrinsic rewards, (2)
intrinsic rewards, and (3) rewards provided by the organization that it
is not aware of providing. Likewise, inputs can be usefully classified
as (1) job-related contributions, (2) performance-related contributions,
and (3) personal inputs �
contributions that are not obviously required by the job but that
individuals believe are relevant to the organization.
We lean heavily toward
equity theory as a useful explanation of membership motivation. If
individuals perceive the situation as equitable, they are likely to join
the organization and continue their membership. An individual’s decision
that equity exists seems to represent the attitudinal counterpart of
March and Simon’s inducements-contributions balance.
Goal-Setting Theory
This theory argues that employees set goals and that organizations can
influence work behavior by influencing these goals. The
major concepts in the theory are intentions (targets), goals
(performance standards), goal acceptance (the degree the goal becomes
the conscious intention), and goal commitment (effort expended). These
concepts are assumed to be the motivation. Hard goals, when accepted,
are postulated to be better than easy ones. Participation in goal
setting should increase commitment and acceptance. Individual goal
setting should be more effective than group goals because it is the
impact of goals on intentions that is important. The more specific the
goal, the greater its impact.
In goal-setting theory
the crucial factor is the goal. Although the incentive or reward may
affect goal acceptance and commitment, neither are the critical
element. They are important only as they affect the goals. Tests of the
theory show that using goals leads to higher performance than situations
without goals, and that difficult goals lead to better performance than
easy ones. But participation in goal
setting, though it may increase satisfaction, does not always lead to
higher performance. Assigned goals may work as goals set with employee
participation. Rewards and social pressure have been found to affect
performance independent of goals. Difficult, accepted, specific goals
combined with feedback and rewards for goal attainment should result in
highly motivated employees.
Expectancy Theory
This theory argues that people choose the behavior they believe
will maximize their payoff. It states that people look at various
actions and choose the one they believe is most likely to lead to the
rewards they want the most. The elements in the theory are expectancies
that certain outcomes will occur and the valence (anticipated
satisfaction) of those outcomes. Although the formal elements are
expectancies and valences, in most formulations expectations are divided
into two types: expectancy (the expectation that effort will lead to
performance) and instrumentality (the expectation that performance will
lead to reward).
The earliest statement of
expectancy theory was made by V.H. Vroom, who developed a model both to
predict choice of occupation and how much effort will be expended on the
job. In this model each expectancy is
multiplied by its valence and the products are summed. The theory
predicts that the individual will choose the alternative with the
highest expected return.
Later formulations, by E.
Lawler, summed the product of expectancy (E→P) and the sum of the
products of each instrumentality (P→0) and its valence (V). Therefore, a
person will behave in whatever way results in the highest score in this
equation: (Σ[(E→P) X Σ[(P→0)(V)]]). This
means that there is only one probability of effort leading to
performance but several possible outcomes from performance, each with a
separate valence.
Expectancy theory has
been tested extensively. The usual
approach is to obtain expectancies, instrumentalities, and valences by
questionnaire or interview and to relate these responses to
self-reported or measured choices, such as occupational choice, job
satisfaction, effort, or performance. It has been found that expectancy
theory can do an excellent job of predicting occupational choice and job
satisfaction and a moderately good job of predicting effort on the
job. Expectancy theory implies that the anticipation of rewards is
important as well as the perceived contingency between the behaviors
desired by the organization and the desired rewards. The theory also
implies that since different people desire different rewards,
organizations should try to match rewards with what employees want.
Although these
implications suggest that following the requirements of expectancy
theory will lead to performance motivation in organizations,
organizations should be aware of possible difficulties. For example,
employees may not want more of the rewards offered by organizations. Or
they may believe that in order to get more of one reward (pay) they must
give up another reward (security or pleasant social relationships).
Again, employees may not believe that good performance does in fact lead
to more desired rewards, and convincing them may require more changes
than the organization is prepared to make. Or employees may not believe
that performance always reflects their efforts. Many factors that are
beyond employee control may affect performance. Poor selection and
training of employees, for example, even with maximum effort, results in
poor performance.
It should be apparent
that the possibility of securing performance motivation through the
application of expectancy theory varies by employee group and the
technology of the organization. Although for most people more money is
better, there may be some who don’t value it highly. Some employees may
want other rewards the organization doesn’t want to provide (autonomy
for a file clerk, for example). In some jobs, the relationship between
effort and performance is beyond the control of employees. For many
types of employees (and in many organizations) the relationship between
performance and rewards is in fact very low and it is impossible to
convince employees that high performance leads to high rewards.
Finally, it should be
noted that the components of expectancy theory are beliefs that require
a good deal of information and a rather complex cognitive process in
determining action. Some employee groups do want the rewards the
organization has to offer, do want to believe that greater effort
results in improved performance, and do want to believe that better
performance leads to greater rewards. For such groups expectancy theory
seems the preferred route to performance motivation. But for groups who
lack these beliefs because of lack of information or whose behavior is
guided by habitual actions or by what they see others do, a
non-cognitive approach would seem superior.
NON-COGNITIVE
THEORIES
Non-cognitive theories do not dwell on what goes on in the
person’s head. Instead, they claim that it is the environment that
determines the behavior of the person. Therefore, to control behavior,
one must control the person’s environment.
Behavior
Modification
This theory of operant conditioning is such an approach. The components
of the theory, which is based on the work of Skinner, are the ideas of
reinforcement and environmental determinism. Human
beings are assumed to emit two types of behavior: respondent and
operant. Respondent behaviors are controlled by instincts and direct
stimulation; sneezes are an example. Operant behaviors are emitted in
the absence of any apparent external stimulation. But whenever an
operant behavior is followed by a consequence that changes the
likelihood that the behavior will recur, the event or consequence is
called a reinforcer. Consequences that increase the frequency of
behavior are called positive reinforcers. Ones that decrease the
frequency are negative reinforcers. When it is discovered that a
consequence serves as a positive or negative reinforcer for a particular
behavior, the frequency of the behavior can be manipulated by using the
reinforcer. Skinner
argues that no cognitive processes are involved. The behaviorist
believes that operant behavior is caused by environmental
events. Current behavior is caused by the history of their
reinforcement.
One of the issues in the
use of operant conditioning is the optimal schedule of
reinforcement. Skinner suggests that continuous reinforcement produces
more immediate change but that variable reinforcement produces changes
that are more lasting. A study by Latham showed a 33 percent increase
for a continuous schedule and none for the control group. Studies
using variable schedules have conflicting results. Tests of the theory
show that there is little difference in performance between the types of
schedules, but a big difference between reinforcing and not reinforcing.
Implementing a behavior
modification program involves a number of steps.
The first one is specifying the behavior to be changed. Next, its
present frequency (the base rate) must be measured. Then various
outcomes contingent on the desired behavior are administered and changes
in frequency observed. Most programs include frequent reports and
feedback. The result is a determination of the rewards that work best
and the best reinforcement schedule. Operant conditioning and approaches
based on expectancy theory are similar. Both argue that the contingency
between the behavior and the reward is crucial. The major difference is
the presence or absence of mental processes: cognition.
One criticism of the
operant approach is that the results found are due not to reinforcement
but to the feedback used, to the goals, or to some other confounding
variable. A practitioner and a former
student of the authors applied behavior modification over five years and
found that feedback can produce a performance improvement of up to 18
percent, but that reinforcement results are much greater.
Recently the issue of
whether behavior modification is entirely non-cognitive has arisen. It
has been suggested that behavior can be (1) traced to beliefs or
perceptions (expectancy theory), (2) traced to reinforcement (operant
conditioning), or (3) learned from the experiences of others. Called
social learning theory, this proposal seems to bridge cognitive
and non-cognitive motivation theory.
