A situation that comes to mind for me when i think of compensation influencing a decision or behavior is when one of my friends left their financial advising job at the bank to start her own financial advising business. When she worked at the bank it was good as she had a stable salary and benefits, however she felt limited by the compensation structure and the amount of control the company had over her. She worked long hours and built great relationships with her clients, but a large chunk of the profits and commission went to the bank rather than to her. Over time this created frustration because she felt her work and performance wasn’t being rewarded.
I think that compensation played a huge factor in her decision because she realized that working independently could potentially bring a greater return on her effort and work. Starting her own business also gave her more control over her commissions, pricing, and client relationships. The possibility of higher earnings and long term financial growth was a major motivation for her to take the risk. I think this connects to the equity theory as she compared the amount of effort and value she brought to the bank with the compensation she received and felt there was an imbalance.
I think her decision also relates to the idea from the article On the Folly of Rewarding A, While Hoping for B. As the bank wanted employees to build strong relationships with clients and grow the business, however the compensation system didn’t fully reward employees for the effort. When she started her own business, she became more motivated because her pay was connected to how hard she worked and the amount of success she had.
References:
Compensation (Lectures 1-3)
Kerr, S., (1977) Folly of Rewarding A While Hoping for B
, Academy of Management Executive, 7-14 (weblink to article through OSU Library)