1. Management 40130 - Motivation Theories
Equity Theory (Adams, 1963)
People develop beliefs about what is a fair reward for one’ job contribution - an exchange
People compare their exchanges with their employer to exchanges with others-insiders and outsiders called referents
If an employee believes his treatment is inequitable, compared to others, he or she will be motivated to do something about it -- that is, seek justice.
Management Motivation Theories

2. Management 40130 - Motivation Theories
Model of Equity Theory
Is versus Ir
Os Or
I = Inputs - employee’s contribution to employer
R = Referent - comparison person
S = Subject the employee who is judging fairness of the exchange
Management Motivation Theories

3. Equity Theory - Exchange Scenarios
Case 1: Equity -- pay allocation is perceived to be to be fair - motivation is sustained
Case 2: Inequity -- Underpayment. Employee is motivated to seek justice. Work motivation is disrupted.
Case 3: Inequity - Overpayment. Could be problem. Inefficient. In other cultures employees lose face.
Management Motivation Theories

4. Consequences of Inequity
The employee is motivated to have an equitable exchange with the employer.
To reduce inequity, employee may…
Reduce inputs (reduce effort)
Try to influence manager to increase outcomes (complain, file grievance, etc.)
Try to influence co-workers’ inputs (criticize others outcomes or inputs)
Withdraw emotionally - or physically (engage in absenteeism, tardiness, or quit)
Management Motivation Theories

5. Equity Theory Applications
Develop tools to pay people in proportion to their contributions
Let employees know who their pay referents are in the pay system: identify pay competitors and internal pay comparators.
Strive for consistent pay allocations
Monitor internal pay structure and position in the labor market for consistency.
Management Motivation Theories

6. Reinforcement Theory (Skinner, 1953)
Behavior that is rewarded will be more likely to be repeated and strengthened (Thorndike, 1911).
Behavior --> Consequence
- Reinforcement/No reinforcement/
Punishment
Reinforcement - a desirable consequence, e.g., rewarded behavior increases the probability it will occur in future.
Management Motivation Theories

7. Reinforcement Theory (Cont’d)
Extinction - the process of unlearning a behavior and the consequences that formerly reinforced it.
Schedules of Reinforcement
Output Schedule (number of units)
Fixed Ratio
Variable Ratio
Time-based Schedule (daily, weekly,yearly, etc)
Fixed Interval
Variable Interval
Management Motivation Theories

8. Schedules of Reinforcement
Continuous Schedule - reinforce every behavior or unit.
Useful for learning new skills
Not practical for pay system
Behavior is quickly extinguished w/o reinforcement
Intermittent Schedule - behavior is reinforced on a partial basis.
Behavior is strengthened an takes longer to become extinct once it is learned.
Management Motivation Theories

9. Intermittent Reinforcement Schedule
Fixed Interval
Reinforcement received after the passage of time.
Least resistant to extinction. (people expect it)
Ex. Monthly salary, hourly wage, annual bonus.
Variable Interval
Reinforcement received on a variable (uncertain) schedule.
Reward less likely to be viewed as entitlement.
Ex. Quarterly profit sharing (some quarters occur without profits) / Spot cash reward - paid out “after the fact”
Management Motivation Theories

10. Intermittent Reinforcement (Cont’d)
Fixed Ratio
Reinforcement received according to fixed amount of output
Ex. Piecework pay - worker get $1 for picking 12 apples / Sales commission - 6% of house selling price.
Variable Ratio
Reinforcement received according to variable (uncertain) amount of output.
This schedule is most resistant to extinction.
Ex. Entrepreneurship Rewards - One takes risks with one’s capital and is uncertain how much output will lead to a big reward. / Gamboling behavior - slot machines.
Management Motivation Theories

11. Reinforcement Theory - Applications
Continuous reinforcement increases rate of learning
Intermittent reinforcement strengthens behavior that is learned.
Ratio schedules produce greater motivation than interval schedules.
Variable schedules produce stronger motivation than fixed schedules.
Pay may not always work with ratio or variable schedules, but praise, recognition and feedback can be used effectively with intermittent reinforcement.
Management Motivation Theories

12. Management 40130 - Motivation Theories
Agency Theory (Fama, 1980)
Principal - Agent Relationship
Principal is the owner, and delegates responsibility to the agent to manage the business.
Agent - is a manager hired by the owner to run the business.
Assumptions - 1) agents act in self-interest. 2) agents have more knowledge about business than the owner (information asymmetry) 3) agents are more risk averse than owner.
Management Motivation Theories

13. Agency Theory (Cont’d)
Agency Problem
Agent’s interest may conflict with principal’s interest - leading to opportunism (moral hazard).
How can agent be motivated to behave in owners’ interests? It can be costly to monitor agent’s behavior.
Solution to Agency Problem - Agency Contract
Contract aligns interests of principal and agents.
Compensation is a tool of incentive alignment.
Tie rewards for agent to outcomes desired by principal.
Ex. Executive Pay - Tie large share of CEO (agent) pay to increasing the share price of the stock (agent’s goal). Stock options is an incentive alignment tool.
Management Motivation Theories