The HR specialist has a difficult task of fixing wages and wage differentials acceptable to employee and their leaders. Executive remuneration has assumed considerable importance in recent years. Salaries and perks paid to highest decision-makers in organizations are skyrocketing, and this sudden spurt in managerial remuneration was the result of economic deregulation and the consequent entry of MNC's into the various regions.
The expectancy model has its roots in the cognitive, concept of pioneer psychologists Kurt Lenin and Edward Tolman. However, the first to formulate an expectancy theory, directly aimed at work motivation, was Victor H. Vroom. Expectancy theory is based on the idea that work effort is directed towards behaviors that people believes will lead to desired outcomes. Despite its general appeal, the expectancy model has some problems. It is important to discover what kinds of behavior the model explains and to which situation it does not very well apply. Contrary to the assumption of the expectancy theory the individuals make decisions consciously; there are numerous instances, where decisions are made with no conscious thought. It is complex, and thus its validity is difficult to test in its entirety. Limitations apart the expectancy model is useful in as much as it serves as a heuristics decision tool to guide managers in dealing with the complexity of motivation in organizations. Motivation principles such as encouraging employees' performance and matching rewards to performance can be drawn from the theory. These principles can be used to guide managers in designing organizational rewards, work systems, Management by objectives, and goal setting.
The equity theory is another process theory. The theory owns its origin to several prominent theorists like Festinger, Heider, Homans, Jacques, Patchen, Weick and Adams. However, it is Adam's formulation of the equity theory which is most highly developed and researched statement on the topic. The equity theory proposes that individual's attempt top reduce any inequity they may perceive as a result of exchange relationship. The equity theory is based on the judgment of fair treatment. The difficulty is that not everyone appreciates the concept of fairness equally. Equity predictions, therefore are more likely to apply to people who are morally mature, that is individuals guided by a normal system in which the fair distribution of rewards is a fundamental tenet (Steers and Porter, 1975).
The agency theory focuses on the divergent interests and goals of the organization's stakeholders and the way that remuneration can be used to align these interests and goals. Employers are the two stake holders of a business unit, the former assuming the role of principles and the later the role of agents. The remuneration payable to employers is the agency cost. The agency theory says that the principals must choose a contracting scheme that helps align the interest of agents with the