Question

As the HR manager, would you pay more attention to expectancy theory or equity theory in designing your compensation system? Why?

Answer 1

Firstly we have to explain what is equity theory and what is expectation theory of compensation.

According to equity theory, the pay structure or remuneration of employees should be in an equitable or uniform manner .

Expectancy theory is based on the assumption that employees will work more when their extra efforts are rewarded. Expectancy theory is the relationship between behaviour and reward.

Of course I would choose Expectancy theory of compensation over Equity theory. Equity theory suffers due to the following limitations.
If all employees are receiving same payment in every aspect it is not necessary that he or she will work in an efficient and effective manner.
It will demotivate an employee who work hard, he or she may think that he is working harder and getting same pay as other employees get. There is no difference between efficient and inefficient employees.

If an organisation follows expetency theory of compensation, employees will be motivated to do a particular task or job for which he is sure that the performance will be followed by a definite reward or an outcome. If they are rewarded for their extra efforts they will be willing do more than they have previously done .

Human beings are different and have different capabilities. So the payment also should be based on their potential capabilities.

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