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Chapter 9

HRM 2600 Chapter Notes - Chapter 9: Expectancy Theory

Human Resources Management
Course Code
HRM 2600
Indira Somwaru

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Chapter 9
Objectives of the compensation system
Pay for performance standard
The standard by which managers tie compensation to employee
effort and performance.
Refers to a wide range of compensation options, including merit-
based pay, bonuses, salary commissions, job and pay banding,
team/ group incentives, and various gainsharing programs.
Pay Equity
An employee’s perception that compensation received is equal
to the value of the work performed.
A motivation theory that explains how people respond to
situations in which they feel they have received less (or more)
than they deserve.
Individuals form a ratio of their inputs to outcomes in
their job and then compare the value of that ratio
with the value of the ratio for other individuals in
similar jobs.
Internal/External factors determining the wage mix - How are
the wages for my job determined?
Employer’s Compensation Strategy
Setting organization compensation policy to lead, lag, or
match competitors’ pay.
Worth of a Job
Establishing the internal wage relationship among jobs and
skill levels.
Employee’s Relative Worth
Rewarding individual employee performance
Employer’s Ability-to-Pay
Having the resources and profits to pay employees.
Labour Market Conditions
Availability and quality of potential employees is affected
by economic conditions, government regulations and
policies, and the presence of unions.
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Area Wage Rates
A firm’s formal wage structure of rates is influenced by
those being paid by other area employers for comparable
Cost of Living
Local housing and environmental conditions can cause
wide variations in the cost of living for employees.
Inflation can require that compensation rates be adjusted
upward periodically to help employees maintain their
purchasing power.
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