QUESTION 2 (25 marks)
Answer the questions below
a. Discuss the various ways in which pay can be adjusted to performance. (15 marks)
b. Explain how inequity causes behaviour to change according to Adams. (10 marks)
a. There are several ways in which pay can be adjusted to performance:
1. Merit-based pay: This is a common method used by organizations to link pay with performance. Employees who meet or exceed performance expectations are rewarded with higher pay or bonuses. This approach motivates employees to improve their performance to earn higher rewards.
2. Performance-based bonuses: Instead of incorporating performance into the regular pay structure, organizations may offer bonuses based on individual or team performance. These bonuses can be tied to specific goals or targets, and employees are rewarded accordingly.
3. Commission-based pay: This approach is typically used in sales-oriented roles. Employees receive a percentage of the revenue they generate through their sales efforts. The more they sell, the higher their pay.
4. Profit-sharing: Some organizations offer profit-sharing plans, where a percentage of the company's profits is distributed among employees based on their performance. This aligns employees' interests with the company's financial success and encourages them to contribute to the organization's profitability.
5. Stock options or equity grants: Companies may offer employees stock options or equity grants as part of their compensation package. These options or grants provide employees with the opportunity to benefit from the company's growth and success, based on their performance.
6. Variable pay plans: Organizations may develop variable pay plans that are based on a combination of individual, team, and organizational performance. These plans often utilize performance metrics and goals to determine the payout amounts.
7. Performance appraisal and salary adjustments: Performance appraisals are often used to assess an employee's performance and determine salary adjustments. Based on the appraisal results, an employee's pay may be increased or decreased accordingly.
b. According to Adams' equity theory, when individuals perceive inequity in their pay compared to others, it can lead to various behavioral reactions:
1. Increase or decrease effort: If individuals perceive that their pay is lower than others in similar positions despite similar levels of effort or performance, they may reduce their effort, feeling demotivated by the inequity. Conversely, if they perceive that their pay is higher, they may increase their effort to maintain their perceived advantage.
2. Distort perceptions: Individuals may attempt to rationalize the inequity by distorting their perceptions. They may attribute their higher pay to their own superiority or exceptional performance, while attributing others' lower pay to their own deficiencies or lack of effort.
3. Seek equity: Individuals may take action to restore equity by seeking a pay increase, requesting a performance review, or comparing their pay to others within or outside the organization. This can lead to behavioral changes as individuals strive to achieve a sense of fairness in their pay.
4. Job dissatisfaction: Inequity can contribute to feelings of unfairness and dissatisfaction with one's job. This can lead to reduced morale, lower job satisfaction, and increased likelihood of turnover or withdrawal behaviors.
5. Equity restoration: Individuals may engage in behaviors to restore equity, such as reducing their work effort, engaging in counterproductive work behaviors, or seeking alternative employment opportunities. These behaviors serve as a way to address the perceived injustice and restore balance.
Overall, Adams' equity theory suggests that perceived inequity in pay can have significant effects on individuals' attitudes, behaviors, and motivation within the workplace.