Psychology of Pay and Compensation

In most industrialized countries the compensation, of managers and employees is structured along quite comparable patterns. One part consists of base pay, a second part of results-oriented pay, and a third part of secondary labor conditions. In many instances part four is composed of perquisites: benefits which are particular to a company. This common compensation pattern is partly due to a series of widely shared beliefs and expectations about the differential impact of the various components upon attitudes and work behaviors. After outlining these expectations, three rather representative theories on pay are discussed: expectancy, equity, and reflection theory. They serve to consider whether the expectations are theoretically grounded. It is concluded that beliefs and expectations about the impact of pay are much more outspoken than the three theories would want these to be.