Pay differences explained through expectancy, goal setting, and equity theories

Compensation and Differences in Pay

Reasons for Differences in Pay

The reasons for pay differences include:

Good performance that warrants increased compensation - EX, GS

Organization Loyalty - GS, PE

Experience - amount of time with the organization; - EQ

Education and professional qualification level, training, and skills - EQ

Negotiation made when recruiting

Seniority in the office environment - EQ

Need for retaining employee through compensation - PE

Hard work; - EX, GS

Personal traits in commanding respects and motivating others - EQ

Acknowledgment or preferential treatment from a manager.

Expectancy Theory

The difference in compensation resulting from the good performance that warrants increased compensation and hard work draw relevance from the expectancy theory. Expectancy theory argues that employees have an expectation that the effort they put in work tasks, and the performance that yields will be valued. The expectation of valuations of the outcomes influences an individual motivation in task performance. Where the outcome is appreciated through value given, the employee's remuneration as compensation is likely to be higher. The belief employees have about their work performance plays a pivotal role in the expectancy theory. An individual employee is assumed to be rational in the way they undertake their work duties and will only do so much depending on their expected outcomes or the value that is placed on the task they perform. Depending on the value given to outcomes as a form of appreciation, the individual will ensure that their work performance targets to retain the value or even increase the value.

Goal Setting Theory

The goal setting theory gives relevance to good performance, commitment to organization goals, and hard work. Employee compensation for the task is dependent on their articulation of task and attempt plus success in meeting set goals or targets. Different employees have a different attribute that influences how well they attend to given task. To be able to tap optimal input and output from employees organizations such as Netflix gives tasks with specified rewards. The rewards seek to encourage employees commitment in coming up with consumer-oriented solutions. The rewards as well as exploiting the employees' potential will create a different reward system for various achievements.

Psychological Empowerment

Compensation differences are likely to be explained by loyalty to the organization and the organization's need to retain committed employees. Under the psychological empowerment theory, an employee values their contribution to the organization highly. The valuation an employee gives to their task allows them to find meaning, impact, self-determination and competence while working in the organization. The psychological empowerment theory builds towards employee's commitment and growing support to the task and organization at large. Depending on individual employees commitment to organizational goals, individual commitment to the task may influence differences in pay. From the commitment of an employee, attachment to the organization and need to remain in the organization may result. This commitment may influence an increase in salary to compensate for the exhibited commitment or salary to be maintained at the current level because no further motivation is needful. The commitment of continuance may also result when an employee perceives the cost of leaving to be high. The compensation, in this case, may be increased so that an employee can continue with the organization and keep their perceived cost of leaving high.

Goal setting theory and psychological theories have the highest relevance in explaining the difference in pay among employees. Among the reasons given for difference in pay, negotiation made when recruiting, and acknowledgment or preferential treatments from manager have no relevance to the four theories of compensation. These reasons are not illegal, but the latter is unwise since it may work to compromise an employee's commitment to work task and their performance.