What contribution can psychological theories make to our understanding of motivation and reward in the workplace? Consider these theories in relation to variable pay and incentives. Draw on theory, evidence, and examples of reward management in practice.
- Significance of psychological theories in HRM
- List prevalent theories (Maslow's, two-factor)
- Not empirically proven (individuality)
Definition and theory
Physiological, safety, social/love, esteem, and self-actualisation. 
- Distinct hierarchy (rigid but broad and inclusive due to individuality)
“In one exercise, we got groups of eight housekeepers at a table and asked an abstract question: if someone from Mars came down and saw what you were doing as a housekeeper in a hotel, what name would they call you? They came up with “The Serenity Sisters,” “The Clutter Busters,” and “The Peace of Mind Police.” There was a sense that people were doing more than just cleaning a room. They were creating a space for a traveler who was far away from home to feel safe and protected.” 
- Encourage engagement in higher levels of the pyramid
- Inspiration from knowing the importance of the job with respect to the company
- Human connection - appeal to society
- Quality of life benefits for lower levels of pyramid
- Extrinsic rewards
House & Wigdor (1967) criticised Herzberg's Motivation-Hygiene Theory on
- Limitations of the methodology used - Critical Incident Technique.
- The faulty research base.
- That the Theory was not consistent with previous research evidence of satisfaction and motivation.
Herzberg suggests that in order to motivate people, management should focus on either
factors related to the work itself or the direct outcomes derived from it, such as:
- Personal growth opportunities.
- Achievement responsibility.
- Promotional opportunities and recognition
Hawthorne effect and Attribution theory
Not enough relevance
Definition and theory
The experimenters concluded that it was not the changes in physical conditions that were affecting the workers' productivity. Rather, it was the fact that someone was actually concerned about their workplace, and the opportunities this gave them to discuss changes before they took place. 
Expectancy Theory (Vroom)
Definition and theory
View of behaviour as subjectively rational and as directed toward the attainment
of desired outcomes and away from aversive outcomes
- Focuses on outcomes rather than needs. 
- Believe that they have the ability to perform the job
- Will be rewarded for doing the job (expectancy)
- Will receive the reward they require (valence)
Motivation is a combination of these three key factors:
- Expectancy: effort will lead to reaching performance goals, affected by self-confidence.
- Instrumentality: reaching the performance goal grants a reward.
- Valence: subjective perceived value of the reward.
In order to enhance the performance-outcome tie, managers should use systems that tie rewards very closely to performance. Managers also need to ensure that the rewards provided are deserved and wanted by the recipients.
Edward Lawler claims that the simplicity of expectancy theory is deceptive because it assumes that if an employer makes a reward, such as a financial bonus or promotion, enticing enough, employees will increase their productivity to obtain the reward. However, this only works if the employees believe the reward is beneficial to their immediate needs. For example, a $2 increase in salary may not be desirable to an employee if the increase pushes her into a tax bracket in which she believes her net pay is actually reduced, which is actually impossible in the United States with marginal tax brackets. Similarly, a promotion that provides higher status but requires longer hours may be a deterrent to an employee who values evening and weekend time with their children.
Other fields of management research (e.g., leadership, decision making, negotiations, groups and teams, and organization design) continue to develop conceptually, substantive theoretical developments focusing on work motivation have not kept pace.
Goal Setting Theory
Definition and theory
Individuals are motivated and perform better when:
- Goals are challenging (focuses attention, energiser)
- Goals are specific (provides direction, purpose)
- They are involved in the process of setting the goal (commitment and persistence)
Feedback and results of the attempt is available (adapt strategies, improve and measure progress)
- Widely used SMART goal planning
- Management by objectives - place certain rewards at certain performance goals
In the study "The effects of reward type on employee goal setting, goal commitment, and performance" it was found that not all individuals are motivated by cash rewards.
Reward system implications
Reward systems where payments are made based on employee performance. (ACCA, 2013)
Variable pay results in good pay satisfaction only among workers at the top of the earnings distribution. For the rest of the workers, a partly variable pay results in better satisfaction than either a completely fixed or completely variable pay scheme.
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