A theoretical analysis of relational job design and compensation

Abstract

SummaryIn an analysis that blends ideas from organizational behavior and economics, I propose a new theoretical model that integrates relational job design and compensation. In the model, employers choose both a level of compensation and levels of relational job architecture (both the degree to which workers have contact with the beneficiaries of their work, and the degree to which a job offers opportunities for employees to affect the lives of beneficiaries) with an eye toward maximizing profit. Higher levels of compensation increase the average productivity of new hires, whereas higher levels of relational job architecture motivate existing employees to work harder. Several key predictions emerge from the theory: (1) higher levels of relational architecture, and sometimes higher levels of compensation, yield greater worker effort, (2) the response of worker effort to an increase in the degree to which the worker values monetary compensation has an inverted-U shape, (3) increases in the price of the firm's service or product yield increases in compensation, and also changes in the provision of relational architecture that depend on the way in which both components of relational architecture affect the worker's cost of exerting effort. Themes emphasized throughout are the benefits of embedding ideas from organizational behavior in the optimizing frameworks that are fundamental to economics, and also the benefits of merging theories of job design with theories of compensation.

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