Definition of Expectancy Theory
Expectancy theory proposed by Victor Vroom in 1964 suggests that individuals are motivated to perform well by anticipating the rewards and performance recognition in the company. A person's behavior changes according to the expectations he/she has on the actions they had performed.
Companies using performance-based salaries can expect higher performance, better retention, satisfaction, productivity, quality, and morals. For best results, Pfeffer in 1998 suggests that along with performance-based salary, companies should offer higher than market average salary for better performance and productivity.
Expectancy theory has three components:
- Expectancy: Individual believes that his/her efforts will lead to the expected performance goals
- Instrumentality: Individual believes that he/she will get the desired outcome if the performance is met.
- Valence: Individual place a unique value on the expected outcome.