CHAPTER 8

Financial Rewards

Many controls are available to manage the principal-agent relationships within an organization, chief among them is the provision of rewards. Vroom’s expectancy theory of motivation underlies the process of influencing employee behavior using rewards. The theory argues that individuals choose to exert effort if they believe doing so will result in desirable outcomes.1 The expectation that effort will translate into outcomes and the attractiveness of those outcomes are what impel individuals to choose certain behaviors or actions. Following Vroom, we assert that management controls can activate employee effort by providing employees opportunities to earn attractive rewards. More specifically, rewards, if linked to employees’ ...

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