theories of remuneration (2)
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Theories of Remuneration
MBA(SEM)-HR
CDAC-NOIDASchool of management
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What is Remuneration???
Remuneration is the compensation an employee receives in return for his or her contribution to the organization.
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The Theories
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Reinforcement Theory
A theory that says that behavior is a
function of the consequence.
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Features-Reinforcement Theory
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Predictions
• Performance based payment must follow closely behind performance.
• Rewards must be tightly coupled to desired performance objectives.
• Withholding payouts can be a way to discourage unwanted behaviors.
Timings of payments is very important!!!!
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Equity Theory
A theory that states that individuals compare their job inputs and outcomes with those of others and then respond to eliminate any inequities.
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Dimensions Of Equity
Perceptions of Fairness
Motivation
Commitment
PerformanceIndividual Equity
External Equity
Internal Equity
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Features-Equity Theory
• Employees are motivated when perceived outputs(i.e., pay) are equal to perceived inputs (e.g., effort, work, behaviors).
• A disequilibrium in the output-to-input balance causes discomfort.
• If the employees perceive that others are paid more for the same effort, they will react negatively to correct the output-to-input balance.
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Equity Theory
• I/O < I/O (Underpay)• 5/10 10/10• Inequity
• I/O = I/O (Equity)• 10/10 = 10/10
• I/O > I/O (Overpay• 5/10 10/10 • Inequity
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Predictions
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• Performance must be clearly defined and the employees must be able to affect them through work behavior.
• If payouts do not match expectations ,employees will react negatively.
• Fairness and consistency of performance-based pay across employees in the organization is important.
• Since employees evaluate their pay-effort balance in comparison to the other employees , relative pay matters.
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Agency Theory
• A theory that states that both sides of the exchange will seek the most favorable exchange possible and will act opportunistically if given a chance.
• Executive/Employee-The Agents• Shareholders-Principals• Remuneration payable-Agency cost
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Agency Theory
The Agency Theory says that the principal must choose a contracting scheme that helps
align the interest of the agent with the principal’s own interest.
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Agency Theory
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• Performance based pay is optimal compensation choice for more complex jobs where monitoring employees work is difficult.
• Performance targets should be tied to organization goals.
• Use of performance-based pay will require higher total pay opportunity.
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Thank YouMBA(SEM)-HR
CDAC-NOIDA
School of Management