Let's look for a moment at how various incentive plans work in light of different motivational
theories of behavior. Reinforcement theory, goal-setting, expectancy theory, an agency theory
will help you understand how different incentive plans affect employees attitudes and
behaviors. According to reinforcement theory, when people experience positive consequences
after they do something, they're likely to repeat those actions. This of course includes
employees when they're rewarded under accompanies incentive plan for what they do. In
short, reinforcement theory suggests that individuals are likely to repeat certain behaviors
when they're rewarded for them than when they're not. A second theory regarding why
incentives may prove to be motivating is goal setting theory. When employees are committed
to specific, challenging but attainable goals, the goal serve as an anchor to focus their efforts
on, as well as the amount of effort needed by setting challenging goals rather than simple goals,
employees are encouraged to push themselves to achieve their objectives. And when
individuals have specific goals rather than vague goals, they have a clear sense of the objective
they're trying to realize and are more likely to focus their efforts towards that goal than on
other irrelevant or less relevant activities. Another useful theory regarding the potential
motivating impact of incentives is expectancy theory. According to expectancy theory,
employees make decisions regarding how to act at work based on which behaviors they believe
will lead to the most valued work related rewards and outcomes. Expectancy refers to the
degree to which employees believe that if they work towards a certain performance objective,
there'll be able to achieve that objective. If employees don't believe they're capable of
achieving the objective, their motivation to work towards it will diminish. Instrumentality refers
to whether employees believe that achieving the objective will be rewarded. Employees will be
less motivated to achieve the objective when there's not a direct or consistent link between the
achievement and being rewarded for it. Valance is the degree of value employees place. I'm
different rewards. Employees will be more motivated to achieve incentives that they value than
ones they don't. According to agency theory, managers can motivate their employees to act in
certain ways by aligning their interests with the interests of the firm's other stakeholders,
typically, the company's owners. When properly designed and implemented, incentive systems
reward employees and managers for acting in their best interests of the company's owners.
