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Theories of Compensation In order to understand which components of remuneration are more effective, we need to understand the conceptual framework or theories or employee remuneration. Three such theories are reinforcement and expectancy theories, equity theory and agency theory. Reinforcement and Expectancy Theories The reinforcement theory postulates that a behaviour which has a rewarding experience is likely to be repeated. The implication for remuneration is that high employee performance followed by a monetary reward will make future employee performance more likely. By the same token, a high performance not followed by a reward will make its recurrence unlikely in future. The theory emphasizes the importance of a person actually experiencing the reward. Like the reinforcement theory, Vroom’s expectancy theory focuses on the link between rewards and behaviour. Motivation, according to the theory, is the product of valence, instrumentality and expectancy...