Motivational theories and their relation to performance based pay

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Expectancy Theory
Vroom's expectancy theory identifies important ways to motivate people by changing the person's expectancy with regard to effort to performance, performance to reward valences (Lunenburg, 2011).

Unlike content theories Vroom's expectancy theory does not provide specific suggestions on what motivates people. It is more to do with the antecedents of motivation. The theory is based on the concept that people believe there are relationships between effort, performance and rewards. People will therefore be motivated if they are convinced about effort leading to performance and performance leading to rewards (Lunenburg, 2011).
Pay for performance plans are those that reward people directly based on performance (Berger, 2009). Examples of such plans are commission plans for sales people, piece rate systems for factory workers and stock options for employees (Baker, 2011). Therefore, vroom's expectancy theory can be applied in organizations to study the magnitude of increments or other rewards and their impact on motivation levels as also ensuring a level of transparency so that employees are clear and are assured about specific rewards based on performance.

Equity Theory
According to the equity theory, people are motivated based on their perception of equitability (Zawahreh, & Madi, n.d.). People compare their job's inputs with the outcome. This often relates to the exchange of services for pay (Adams, 1963). Inequity is perceived when an employee perceives an imbalance between outcomes and inputs as compared to other employees" outputs and inputs ( Miner, 1981).

Examples of inputs in the equity theory are education, skills, gender, job effort, appearance and seniority. Examples of outcomes are ...