Description of four main Behavioural Wage Theories
Question:
Describe briefly the four main behavioural wage theories (Need-fulfilment, Expectancy, Reinforcement, and Justice Theories) and then explain how these might influence compensation policies in modern organisations.
This essay focuses on describing the four behavioural wage theories in order to explain the manner in which these theories influences the compensation policies within the modern organizations. Therefore, the four key behavioural wages theories that will be described and evaluated will be need fulfilment, expectancy, justice theories and reinforcement theories. Each of these four theories will be approached in an objective manner wherein the brief description of the theories will be followed by the explanation of the way in which it influences the modern organizational compensation policies.
Following are the objectives:
- To investigate four key behavioural wage theories
- To utilize organizational example pertaining to each theory
- Explaining how these theories influences the compensation policies
The scope of this essay is to utilize the four identified behavioural wage theories in order to explain the manner in which it influences the compensation policies within the modern organizations.
It is important to explain the concept of compensation policies before the behavioural wage theories are discussed. Compensation policies within the modern organizations is a document that presents detailed reporting on the organizational compensation practices by outlining the compensation strategy to set the goals and describing the components of the compensation along with their behaviour as well as role within the organizational compensation scheme (Al-shaibah and Habtoor, 2015).
Need fulfilment theories
The researchers have argued that the Maslow’s hierarchy of needs is the most prevalent behavioural wage theories that is utilized by the modern organizations. It is found from the research that the need fulfilment theories such as the hierarchy of needs theory is utilized by the human resource function of the organizations to develop a compensation structure that undertakes the consideration of the individual’s basic needs (Daniels et al., 2017). The hierarchy of needs theory entails five levels of needs which range from physiological, safety, social and self-esteem to self-actualisation needs. Therefore, the safety needs entails the requirement from the employees that the strong employment contract is in place apart from which it becomes the responsibility of the management to facilitate safe working environment along with security of the compensation (Fall and Roussel, 2014). The compensation security not only includes the basic salary but also the components of paid leave, paid sick leave and other benefits.
For an example, Prisma, Mikkeli is a Finland based organization that utilizes the Maslow’s hierarchy of needs theory to motivate the employees by fulfilling their basic needs and facilitating a fair compensation in order to acknowledge the hard work and efforts of the employees (Gomez-Mejia et al., 2014).
The needs pertaining to the compensation is found to range from psychological to safety needs. While the expectations of the basic pay for the services delivered by an employee within the organization takes place within the psychological needs, the safety needs pertaining to compensation emerges in the form of sick and other types of paid leaves and incentives (Gupta and Shaw, 2014).
The organizational compensation policies are considerably influenced by the need fulfilment theories as the human resource managers of the modern organizations have realized that in order to motivate the employees and living up to the employment contrast, seamlessly facilitating the basic pay for the services rendered by the employees becomes imperative (Hailemichael, 2013).
Objectives of the essay
Therefore, the example of the Prisma organization highlights that the HRM department of this organization have developed their organizational compensation policies on the basis of the Maslow’s hierarchy of needs theory to meet the basic needs of their employees to keep them motivated and productive.
Expectancy theories
According to the researchers, the expectancy theories focuses on motivating the employees to achieve particular aspects of the performance which determines the level of the performance achieved with the expectation that a definite reward will be followed by the outcome.
The expectancy theory established by Vroom indicates that there is a link between behaviour and rewards. The researcher has argued that the motivation according to this theory is based on the three factors of expectancy, instrumentality and valence (Kandaiya et al., 2014). Hence, the compensation systems varies across the organizations on the basis of their impact on the components of the motivation. The valence of the outcomes related to payments are found to remain same even when the pay systems are difference. The perceptions related to expectancy are based on the design of the job and training.
For an example, General Motors has adopted a performance based pay compensation model wherein a basic pay is assigned to the workers on top of which a performance based incentives are given (Lee et al., 2016). This allows the workers to put increased working hours and efforts to enhance their productivity levels to achieve the highest quality and high performance at the same time.
The expectancy theory indicates that the compensation policies of the General Motors were influenced by this behavioural wage theory in light of motivating the employees by providing them an ability to earn more on the basis of the performance they demonstrate.
The performance based incentive program focuses on not only sharing profits of the organization but also an ability to obtain increased incentive (Mattson et al., 2014). For an example, the sales representatives of the automobile manufacturers work on the commission system wherein they are provided with payment on the basis of performance without a set basic pay.
Therefore, the expectancy theory indicates that the strong valence or desire to obtain the rewards drives the individual towards high performance and productivity which can be leveraged to provide with economic incentives to motivate the employees and ensure that the same level of performance is maintained.
Reinforcement
The focus of the reinforcement theory within the compensation systems is different from the other behavioural wage theories. This behavioural wage theory indicates that the behaviour which is accompanied by the positively rewarding experience can be reinforced which indicates repeatability (Misra et al., 2013). Hence, the underlying purpose of utilizing the reinforcement theory within the modern organizations is to encourage the employees with the high performance and expected performance levels to repeat their high performing behaviour. Therefore, this theory places an emphasis on financially rewarding the employees in order to make the performance recurrent in the future (Moragwa, 2013). Hence, the theory enables the employees to experience the reward in order to draw motivation from it for future performance.
Explanation of Compensation Policies and its components
Reinforcement theory is found to influence the compensation systems of the wide range of modern organizations across the globe (Munyon et al., 2016). As the organizational need to reinforce the high performance is critical, the compensation policies of the most of the Fortune 500 companies are influenced by the reinforcement theory.
For an example, compensation policies of the AT&T organization can be considered wherein more than 80,000 middle managers and over 30,000 researchers, scientists and other technical employees were included. The individual and team bonuses were decided on the basis of the corporates’ net profitability (Park and Kim, 2017). Therefore, bonus ranging from 5 to 15 percent were given to the individual and teams on the basis of their performance, net profitability of corporate and net profitability of the business unit. The combination of these metrics allowed the organization to utilize the reinforcement theory to reinforce the high performance and productivity behaviour of the employees.
The example highlighted that the compensation policy that was focuses on the total of 1,10,000 employees was influenced by the reinforcement theory as there was a need to reinforce the exemplary performance behaviour of the employees to ensure that the same behaviour is repeated in the future (Salisu et al., 2016). Moreover, the expectancy theory further complemented the reinforcement as the determinants of the individual and team performance were used to enable reaching the range of incentives defined.
Justice theories
The justice theories within the compensation system of the modern organization are critical for the purpose of developing the compensation schemes of the organization is a just and fair manner (Shittu, 2015). Moreover, the executive compensation systems requires critical consideration of the distributive justice theory in order to ensure that the best practices are followed by the board (Al-shaibah and Habtoor, 2015). The justice theories focuses on ensuring that the inequalities do not arise within the results or outcomes within the society and to ensure that the organizational compensation policies are influenced by the principles of the distributive justice.
It is argued by the researchers that the organizational justice theories are linked with the equal and justified distribution of the pay (Daniels et al., 2017). Therefore, in order to enforce the organizational citizenship behaviours and to ensure that the required level of commitment as well as engagement is present among the employees, the compensation systems are required to be based on distributive justice.
For an example, the compensation policies of the modern organizations for the chief executive officer is influenced by the distributive justice theory in order to prevent any unjust perception of the organization among the employees and to minimize the prevalence of inequalities within the society with respect to the organizational compensation system (Fall and Roussel, 2014). Hence, an example of the Microsoft organization can be taken wherein the organizational policy of this company is based on the distributive justice theory. It is found from the research that the CEO compensation policies of Microsoft in particular are influenced by the principles of micro justice (Gomez-Mejia et al., 2014). Therefore, it has been identified that the consideration to the gender equality as well as just compensation for the CEO has been considered.
Application of Need-fulfilment Theory in Compensation Policies
It is found from the research that the distributive justice theory influences the compensation policies of not only Microsoft but also other companies as the principles of micro justice focuses on the notion about what should be given to which member (Gupta and Shaw, 2014). Apart from this, the compensation policies are influenced by the principles of macro justice. The macro justice principles are responsible for the development of the compensation composition scheme wherein the overall plan of distribution is generated and the extent of compensation justified for each role is determined by the organizational management.
Conclusion
It is found from the research that the four behavioural wage theories are central to the human resource function of the modern organizations across the globe. It has been identified from the research that while the needs theory encourages the organization to meet the basic needs of the employees, the focus of the needs theory remains on ascertaining that the basic expectation regarding the basic pay and compensation of employees is addressed (Hailemichael, 2013). Furthermore, it entails the provision for the sick leaves and other form of paid leaves to meet the basic needs of security. The expectancy theories influences the compensation policy by bringing the performance based pay structures to the compensation system. The expectancy theory indicates the expectation of the employees to obtain rewards upon achievement of the specific objectives and goals (Kandaiya et al., 2014). Furthermore, the reinforcement theories influences the policies of compensation by ensuring that the high performance and productivity behaviours are reinforced and repeated by employees using incentives and financial rewards (Lee et al., 2016). Furthermore, it can be concluded that the justice theories influences the compensation policies of organization by focusing on the fairness and just nature of the compensation for each of the roles.
References
Al-shaibah, M., & Habtoor, N. (2015). Reward system and job satisfaction: A conceptual review. Global Advanced Research Journal of Management and Business Studies, 4(4), 137-141.
Daniels, S. R., Wang, G., Lawong, D., & Ferris, G. R. (2017). Collective assessment of the human resources management field: Meta-analytic needs and theory development prospects for the future. Human Resource Management Review, 27(1), 8-25.
Fall, A., & Roussel, P. (2014). Compensation and Work Motivation: Self Determination Theory and the Paradigm of Motivation through Incentives. The oxford handbook of work engagement, motivation, and self-determination theory, 199-217.
Gomez-Mejia, L. R., Berrone, P., & Franco-Santos, M. (2014). Compensation and organizational performance: Theory, research, and practice. Routledge.
Gupta, N., & Shaw, J. D. (2014). Employee compensation: The neglected area of HRM research. Human Resource Management Review, 24(1), 1-4.
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Mattson, M., Torbiörn, I., & Hellgren, J. (2014). Effects of staff bonus systems on safety behaviours. Human Resource Management Review, 24(1), 17-30.
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Moragwa, O. I. (2013). Determinants of compensation systems among commercial banks in Kenya. Unpublished MBA project, University of Nairobi, Kenya.
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Salisu, J. B., Chinyio, E., & Suresh, S. (2016). The influence of compensation on public construction workers’ motivation in Jigawa state of Nigeria. The Business & Management Review, 7(3), 306.
Shittu, O. (2015). An Examination of Pay Satisfaction in the Nigerian Retail Bank Sector: A Gender Analysis.
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