EURASIA: Economics & Business, March 2025
by
Banchongsan Charoensook, Keimyung Adams College, Department of International Busienss, Keimyung University, Daegu, South Korea
Hyo Jae Han, CJ Logistics, Daegu, South Korea
This research examines the conflicting predictions of Equity and Expectancy theories in a specific context. It analyzes batting performance data of 161 Korea Baseball Organization free agents for the two years before and after their free-agency filing. Equity theory suggests that players may underperform if they perceive their compensation during the free-agent year as inadequate. In contrast, Expectancy theory posits that athletes tend to excel when their contracts are about to be renewed. Our empirical analysis supports Expectancy Theory over Equity Theory. Thus, our findings affirm the common belief among baseball fans that after signing new deals, free agents’ performances often deteriorate due to a lack of motivation stemming from secure, multi- year contracts. Regarding application, this study indicates that baseball clubs in South Korea could be dissatisfied with the outcomes if they compensate free-agent players based on their performance during the free agency year.
The motivation paradox that arises between equity theory and expectancy theory captures a complex interplay between perceptions of fairness and the impact of expected outcomes on motivation. Equity theory posits that individuals are motivated by a desire for fairness in the rewards they receive in comparison to others, suggesting that perceived inequities can demotivate by making workers feel undervalued. In contrast, expectancy theory hinges on the belief that motivation is driven by the expectation that one’s efforts will lead to desired outcomes, emphasizing the role of personal goals and the anticipated satisfaction of achieving them. The paradox occurs when efforts to balance equity within a team, as prescribed by equity theory, potentially undermine the individual motivators identified by expectancy theory. For example, ensuring that rewards are distributed equally among team members to maintain fairness can inadvertently reduce an individual’s motivation to exert extra effort if they believe that the additional effort will not yield extra rewards. This scenario highlights a fundamental challenge in organizational motivation, where the pursuit of fairness and individual motivation must be carefully balanced to optimize team cohesion and personal drive (Adams, 1965; Vroom, 1964; Tosi et al., 2004).
In this article, we explore the motivation paradox within the realm of the Korea Baseball Organization League (KBO), focusing on the pay and performance of its free agents. A free agent in KBO is defined as a player who, after accruing a requisite amount of service time, gains the eligibility to sign with any team. This status offers them an opportunity to negotiate for higher pay and additional benefits. The negotiation dynamics between players and teams highlight a well-known outcome of the free agency system, first introduced in the US Major Baseball League: significant salary disparities among players. This in turn leads to the following motivational paradox. As players approach the end of their contracts, becoming free agents, they frequently engage in challenging salary negotiations. The aftermath of such negotiations can lead some players to reduce their effort, feeling undervalued and undercompensated, which correlates with the expectations of equity theory.
In contrast, there is an expectation that player performance will improve as they become eligible for new contracts, motivated by the desire to enhance their bargaining power. This aligns with the predictions of expectancy theory. To test these theories, we analyzed the performance records of 161 non-pitcher free agents in the KBO who secured contracts with new clubs between 2000 and 2022. Our findings lend support to expectancy theory but do not corroborate the predictions of equity theory. For a detailed examination of the motivational paradox discussed, refer to Table 1. Additionally, Table 2 in Section 2.4 elaborates on the formulation of our hypotheses.
Our research addresses the scarce literature on the pay and performance of KBO players, marking the first study to explore the relationship between compensation, performance, and motivation theory within this context to our knowledge [Closest literature is on the connection between team performance – rather than individual performance as in our paper - and salary distribution in KBO. See Jang (2019). There is also a study on whether two superstar KBO players are underpaid or overpaid (Park and Sun, 2021)]. The closest related work, by Ahlstrom et al. (1999), focused on the US Major Baseball League (MLB) and supported expectancy theory over equity theory. This finding prompts an investigation into whether similar results apply to baseball leagues in other countries, especially in East Asia, where cultural values such as Confucianism may influence perceptions of equity and motivation (Ralston et al., 1995). Contrary to the expected regional emphasis on equity, our findings align more with expectancy theory, suggesting a shift towards individualistic values in workplace motivation, similar to recent observations in countries like Vietnam and Japan (Kim et al., 2017, Collins et al. 2021).
This paper proceeds as follows. The initial section probes into the connection between remuneration and performance within KBO Subsequently, a comprehensive review of motivational literature, chiefly focusing on expectancy and equity theories with a specific emphasis on MLB samples, is conducted. Following this, opposing hypotheses originating from equity and expectancy theories are introduced within this context and empirically tested utilizing a cohort of free-agent MLB players. Lastly, the paper provides conclusions implications and limitations regarding motivational theory, compensation, and performance within MLB, together with discussions on sport management.
The inception of the Korea Baseball Organization League in 1982 marked a pivotal moment in Korean professional sports, establishing baseball as a professional sport. This development was further advanced in 1999 with the introduction of the free agent (FA) system, aimed at safeguarding player rights and autonomy, thereby allowing them to negotiate fair terms and team affiliations. Contrary to the contentious introduction of the FA system in American professional baseball, its adoption in Korea was relatively seamless, supported by club affiliates despite the high costs involved. Historically, the primary objective of Korean baseball clubs was not to generate profit, which has led to persistent challenges in maintaining operations without support from their parent corporations.
Presently, while clubs are seeking ways to become financially self-reliant, the critical role of parent companies in ensuring their financial viability cannot be understated, given the substantial operational expenses involved. Although running a baseball team has not been directly profitable, the market for FA contracts has witnessed substantial growth since 1999, with a significant increase in player contracts. This expansion has introduced disparities in compensation among players with comparable skills, potentially leading to dissatisfaction among those with longstanding contracts. Simultaneously, it may also drive other players to improve their performance, aiming for better terms in future negotiations. These developments underscore complex dynamics in player motivation and competition within Korean baseball (Duane and Stephen, 2019).
A well-structured compensation system that aligns employee rewards with their productivity or customer satisfaction can effectively motivate workers, as indicated by Hassan et al. (2014). Theories like equity theory (Akın et al., 2022) and expectancy theory (Caihui et al., 2022) investigate how rewards are linked to job performance, offering diverse insights on how incentives affect employee output. In equity theory’s view, individuals feel a sense of unfairness if there is a mismatch between their rewards, such as wages, and their efforts, especially when this is compared with others like colleagues or supervisors. This perceived inequality occurs when individuals feel that their rewards do not equate to their contributions in comparison to someone else, who could be a coworker, team member, or employer (Adams, 1965). Equity theory, developed by Adams (1965) , focuses on the impact of perceived unfairness on motivation. Adams highlighted three main points: (a) perceived injustice leads to tension; (b) perceived inequality is linked to this tension; and (c) the level of an individual’s motivation to address this perceived unfairness is proportional to the degree of imbalance. To correct these imbalances, individuals might alter their effort or performance. The theory has been widely used to examine how employees react to different compensation structures.
Research indicates a connection between salary differences and individual job performance. Studies, such as those conducted by Gerald et al. (2013), have shown that workers who feel underpaid tend to deliver lower-quality work, a finding further supported by research from Fallas et al. (2020).
On the other hand, those who are overpaid often display higher productivity levels than their fairly compensated peers. Adams (1965) observed in 1963 that employees receiving higher pay performed better than those receiving pay considered fair. Addressing underpayment is crucial, as pointed out by Mowday (1987). Barry (1984) also found no significant productivity difference in situations of overpayment. Overall, equity theory is effective in predicting employee behavior in environments with bonus-based compensation systems.
Expectancy theory, as discussed by Caihui et al. (2022), is frequently used to understand how people react to different compensation systems. This theory suggests that people decide how much effort to put into their work based on the rewards they expect to receive, and they tend to favor certain rewards over others. Vroom (1964) pointed out that strengthening the link between compensation and work performance is likely to motivate individuals more effectively.
Research reviews, including those by Helen and Russell (2020), have consistently supported the strong association between compensation and job performance. For instance, Ana and Ardita’s (2021) study in the appliance manufacturing sector showed that employees who saw a clear link between their pay and performance were usually more productive. In another experiment by D Debolina et al. (2021), individuals who received bonuses for good performance (the high-instrumentality group) achieved better results than those who were paid hourly (the low-instrumentality group). This difference in performance remained even when the groups changed roles, demonstrating the lasting effect and the efficiency of bonus- based compensation systems. Graen (1969) and later studies, such as that by Sami (2000) on U.S. companies, have further confirmed the motivational power of pay-for-performance schemes.
Table 2 summarizes four pairs of opposing hypotheses concerning changes in performance of athletes based on equity theory and expectancy theory. According to equity theory, players in their free agency years might perceive their compensation as unjust, potentially prompting them to decrease their performance levels in response. Moreover, equity theory contends that athletes would perform better in their first year of their advanced deals than they did the year prior (when they were free agents) if they feel properly rewarded or overcompensated.
Conversely, expectancy theory presents an opposing view, suggesting that athletes will likely strive to enhance their performances if they see a significant link between their efforts and the benefits they gain. Therefore, an athlete approaching contract negotiations may aim to boost their performance, rather than have it impacted by perceptions of unfairness, as stated by expectancy theory. Subsequent to signing the contract, the association between compensation and performance weakens, reducing the athlete’s drive to excel, according to expectancy theory.
According to equity theory, in the year when free-agent athlete seeks an advanced contract, he is expected to perform below their previous year and overall career performance levels (Hypotheses 1a and 2a). On the contrary, the expectancy theory predicts that an athlete’s achievement in his free agency year will be greater than either the previous year or his career averages, since the athlete is looking forward to bargaining a new deal following his freelance year (Hypotheses 1b and 2b).
According to equity theory, players should perform better the next year (the first year of the advanced deal), following the greater (over-)payment condition (Hypotheses 3a and 4a). As a result of the weaker connection between money and performance, expectancy theory, on the other hand, predicts that freshly contracted players would be less motivated and exhibit diminishing achievements (Hypotheses 3b and 4b).
The study’s sample consists of 161 non-pitcher KBO freelance players who signed deals with new clubs between 2000 and 2022. Similar to Ahlstrom et al. (1999) Ahlstrom et al. (1999), the sample was confined to freelance players who switched clubs. The Korea Baseball Organization provided a list of freelance players as well as their performance statistics. Batting average (BA), slugging average (SA), home runs (HRs), runs batted in (RBIs), and at-bats (Abs) were the performance statistics recorded for each player. No competitors less than 40 ABs (at-bats) were included in the sample in any year investigated. This resulted in the exclusion of eight players, all of whom had limited at-bats. Since slugging average (weighted average of batting performance) is a regularly adopted indicator of overall batting performance, it was included in this study.
All performance measurements were gathered for three years in a row: the year prior to the free-agent year, the free-agent year, and the first year of the new contract. Every players’ career statistics were also kept track of. Because they cannot be analyzed (on an aggregate basis) with the single-season totals of the other years, career-level data like career HRs, career RBIs, and career ABs were removed. Significant differences in the performance means were determined using a repeated-measures analysis of variance. Due to the fact that all sample members (players) get a treatment (signing a free-agent deal), and the outcomes (offensive performance metrics) are subsequently examined, a repeated-measures design is sometimes referred to as a within-subjects design Hayes (1988).
Since the study evaluates variations in player repeat performances, a repeated-measures approach is applicable. Fisher’s Last Significant Difference (LSD) test was conducted when the F-test for differences between achievement means for different years was significant. When the F test is significant at a respectable alpha-level and all samples are same, the Fisher’s LSD test can be utilized. Even if it is a little less cautious in evaluating post hoc pairwise differences between the achievement means, it has criteria that are comparable to those of the Tukey’s HSD test J (1982).
Table 3 and 4 provides statistical results and summary of our hypothesis testing. Three of the predictions of expectation theory were supported, but the predictions of equity theory were not supported at all.
Hypothesis 1a Hypothesis 1b compared batters’ performance in the free-agent years with their previous years. The equity hypothesis (H1a) proposed that batters’ grades would be lower for free-agent years compared to the previous year’s performance, while the expectancy hypothesis (H1b) predicted that batters’ free-agent year performances would improve.
A slight decline in average grades was observed in three of four batting performance categories in the year following a player’s free agency. However, this shift was not significant enough to be considered meaningful. Since no significant changes were seen in performances, neither hypothesis was supported. Hypotheses 2a and 2b analyzed the freelance years with career averages. In this case, expectancy hypothesis was supported because the batters’ grade as free-agent years was generally higher than their career averages.
Many baseball fans believe that multi-year guaranteed contracts can negatively impact athlete’s motivation by harming the connection between compensation and performance, especially in the initial phase of such contracts. This study reinforced this view by investigating how the current free-agent system in the Korea Baseball League influences player performance, taking into account conflicting predictions from expectancy and equity theories. The research examines changes in free-agent player performance, where there were modest improvements or declines over the free-agent years, followed by significant declines in the first year of advanced contracts across all offensive batting performance categories, including at-bats (ABs), batting average (BA), slugging average (SA), and runs batted in (RBIs).
This study, based on a broad sample of Korea Baseball Organization (KBO) freelance players from 2000 to 2022, finds no evidence supporting equity theory’s projections that KBO athletes would experience performance declines during their freelance years due to perceived underpayment. Additionally, the study finds no empirical support equity theory’s prediction of improved batter performances after new contracts were signed. These findings suggest that perceived unfairness does not directly impact hitting performance. Conversely, the results indicated that pre-contract anticipation might weaken the motivation levels of free agents signing new deals. Some decreases in runs batted in (RBIs) and home runs (HRs) were observed, mainly attributable to the fewer at-bats per batter in the initial year of advanced contracts compared to their freelance years.
Empirical data revealed that athletes under multi-year contracts takes half more time on the injured list, primarily due to minor injuries compared to athletes with one-year contracts (Kenneth, 1982). This increased time reserved for recovery is often a result of injuries that players would have typically played through, perhaps out of concern for jeopardizing contract performance in earlier years. This hypothesis is supported by the observation that free-agent players in the study demonstrated reduced batting frequency in the initial year of their new contracts compared to previous years, potentially indicating a decrease in motivation commonly related to new free-agent agreements.
The efficacy of signing freelance players from other baseball clubs in the free-agent era starting in 2000 may not align with the anticipated performance and playing opportunities. This research suggests that clubs and their supporters could face disappointment when free agents are procured based solely on their performances during free-agent year. The decline in both performance levels and playing time observed in free-agent athletes after joining new clubs raises concerns about the viability of extended, unconditional contracts not connected to current performance. In response to this issue, Major League Baseball organizations have started to shift towards less long-term agreements and incorporating more performance-based incentives and playing-time bonuses compared to earlier periods in the free-agent era (Duane and Stephen, 2019). Athletes themselves have started recognizing the possibility of rapid devaluation in their compensation.
This study highlights how guaranteed contracts lacking clear ties to performance can lead to reduced motivation. Consistent with existing research in human resource management, which emphasizes the link between performance-based compensation and enhanced motivation, this study underlines the detrimental impact of insufficiently performance-related pay on productivity (Susan et al., 2017). This poses a question for various professions, including highly compensated individuals on non-performance-based contracts, about whether such arrangements contribute to declining achievements, especially in the initial phases when the connection between performance and outcomes is weakest. In diverse sectors such as professional sports and healthcare, organizations encounter the common challenge of motivating employees who receive high and secured compensation but lack strong performance incentives.
The study has limitations in terms of generalization. It assumes that free agents perceive themselves as underpaid in their free-agent years and overpaid after signing, indicating the need for a measurement of under- and overcompensation to fully test equity effects [this limitation is similar to that of Ahlstrom et al. (1999), from which this paper is based].
Focusing solely on KBO nonpitcher free agents who switched to new teams also introduces the possibility of sample selection bias. This bias could lead to performance declines due to changes in environment, especially prevalent among hitters switching leagues. Future research could address this by including free agents who did not switch to new teams to control for team change effects.
Original paper, i.e. Figures, Tables, References, and Authors' Contacts available at http://econeurasia.com/issue-2025-03/article_04.pdf