ECON 1 Lecture Notes - Lecture 15: Siemens, Equity Theory
Document Summary
Pay impacts decisions to produce and to participate. For practitioners, pay is effective tool for controlling costs and influencing motivation. In practice, payroll management/pay administration is seen as a hygiene factor . Must work but isn"t rewarded if it does, if it fails it causes dissatisfaction. Pfp seen as an opportunity for strategic differentiation (in particular in regulated markets) How between-person differences are related to differences in wages (variable pay) Differences may relate to: age, tenure, skills, experience, commitment, health, performance. Improvement of future performance: by tying pay to past performance, firms expect to reduce shirking and increase the worker"s future performance (instrumentality) Social comparisons: people tend to compare themselves with relevant others. Interest alignment: when ownership and control are separated, owners and managers might have different goals, when pay is tied to firm"s performance, interest is aligned. Reinforcement theory (based on thorndike"s law of effect )
