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Introduction to Equity Theory:

Developed in the early 1960s by J. Stacy Adams, Equity Theory focused on social justice or the fairness of social exchanges; “The general idea is that how hard a person is willing to work is determining, in part, by the thoughts about what is fair or just as compared to others” (Courses.worldcampus.psu.edu, 2016, tab 2).  Adams’ Equity Theory commands for a fair balance between “employee’s inputs (hard work, skill level, tolerance, enthusiasm, and so on) and an employee’s outputs (salary, benefits, recognition, and so on)” (Mindtools.com, 2016). To apply Adams’ Equity Theory when promoting higher levels of job satisfaction, motivation, and overall morale, we must recognize and balance inputs and outcomes while also acknowledging the standard, or “comparison other.”

 

 

Terms to Know:

  •  Inputs – “Anything of value that a person believes that he or she brings to the job, such as experience, education, skills, intelligence, and motivation” (Courses.worldcampus.psu.edu, 2016, tab 3).
  • Outcomes – “The benefits that an employee feels that he or she is receiving from the job; these may include pay, job security, good supervisor, competent co-workers, opportunities for advancement, or feelings of accomplishment” (Courses.worldcampus.psu.edu, 2016, tab 3).
  • Comparison Other – “The person or standard that we compare our ratio to” (Courses.worldcampus.psu.edu, 2016, tab 4).
  • Equity Sensitives - "A person who reacts to the felt unfairness in the way equity theory describes and desires balanced ratios." (Courses.worldcampus.psu.edu, 2016, tab 7).

 

Types of Inequity:


There are two types of inequities: underpayment and overpayment. Underpayment inequity “occurs when the ratio of one’s own inputs and outcomes is greater than or less favorable than the ratio of the comparison other," while overpayment inequity “occurs when the ration of one’s own inputs and outcomes is lower than or more favorable than the ratio of a comparison other” (Courses.worldcampus.psu.edu, 2016, tab 4).

Consequences of (In)equity:

So what are some of the Consequences of (In)equity?  Adams (1965) reported that a person in a negative tension state, the state in which there is a perceived imbalance between inputs and outputs when compared to another person’s inputs and outputs, would likely to be motivated to take action in order to relieve tension. 

Since the perceived imbalance occurs by comparing one’s own input/output with another, the nature of the imbalance can influence how an individual might attempt to achieve psychological equilibrium or equity.  Individuals who believe that they are receiving less output for the amount of input they contribute, when compared to another, are likely to experience anger, resentment, distrust, and a sense of disunity with the organizational culture.  On the other hand, an individual who believes they are receiving more output than they input, when compared to another, should likely feel unease or guilt as a result. 

Adams (1965) explained the greater the perceived inequity, the more distress an individual experience, and the more motivated they will be to achieve equity.

So while the consequence of inequity is actually motivation, the actions by which people respond to their perceived inequity can be very negative, and have “wide-reaching implications for employee morale, efficiency, productivity, and turnover” (Stacy Adams Equity Theory, www.YourCoach.be, 2009-2016)

Behavioral Ways to Reduce Inequity:

 

Employees who feel underpaid may change their inputs to match their outcome (PSU L5). For underpayment inequity, the employee may start to arrive late to work, leave early, not pull his fair share of duties, and take excessive breaks or lunches. These are ways that the employee behaves to produce less work in an easier way for him. On the opposite side an employee who feels like he is getting more outcome than his colleague, may increase his own input to make the situation equitable (overpayment inequality). He may do this by working during his lunch break or working longer shifts without compensation.

A second behavioral way to deal with inequality is to change the outcome to match their input. If an employee feels underpaid he may ask for a raise or increase in their vacation time. The employee may also file a complaint with his human resource department in hopes to be compensated fairly. The employee may also begin to steal; this could be supplies, merchandise, food or money. This occurs when the employee feels he needs to “even the score” (PSU L5). Stealing from employers is very common amongst employees who feel underpaid.

A third behavioral way to deal with inequality is to influence a co-worker to change their inputs. If one of the employees is productive and getting the job down quickly, other employees may try to convince him to slow down so the rest of the team doesn’t look bad (PSU L5).  On the opposite side employees may put peer pressure on an employee to increase his there speed to increase quality.

Finally, the last behavior is withdrawing or leaving the field. This generally means that the employee quit his job. Withdrawing means that the employee arrives to work, however does very little work and takes excessive breaks than other coworkers.

All of these behavioral options involve some risk. An employee can be terminated for most of the behaviors listed above. In cases where the employee was not terminated, the outcome may not be what he wants, for example the employee may anger his co-workers by not pulling his fair share of work which may cause additional friction between co-workers. Not all of the employees may feel the same, trying to persuade co-workers to change their input may resent that employee for trying to stir up trouble.

Cognitive Ways to Reduce Inequity:

When an employee poses the question of "am I accurately compensated" many times the answer is "no". In some instances workers will reduce expectation by distorting views of their own capabilities or worth to cope with perceived inequities. There are 3 major ways that a person might use cognitive ways to reduce inequity which are adjusting income and outcomes, comparison to known others, and comparing generally accepted salaries across your field of employment.

Option one uses a formula of weighing the inputs versus the outputs of a current position. Initially the thought process says, I don't bring much to the table" and can actually manifest itself into an employee convincing themselves that they are overpaid for what they do. Conversely, in some cases an employee might start thinking they are worth more than what is actual. Since it's hard to distort outcomes such as benefits and salary, it is more common for an individual to use intangibles such as efforts and experience to base their perceptions (Redmond, 2015).

The second way a worker will reduce their perceived inequity is to convince themselves that another coworker is more important, talented, or experienced than they are. It is easy for some individuals to lose a little bit of self-worth to rationalize inequity. This is an understandable and easy way to establish relief from it. If someone is better than I am then they deserve more. In some cases this may even be true. In other cases, this is more of a way to mask true felling and can lead to long term frustration in workers.

Rationalizing compensation over industry standards is the final inequity reduction method. While this may seem rather random and arbitrary, it's hard to disprove due to so many factors being involved. Take for example my position in project management in the Financial Industry. I may look online and see a job for twice my salary and I may even take a look into level of experience. It's nearly impossible to factor in everything that goes into the income and compensation level that help me derive an opinion based on the tertiary findings. According to research, individuals who harbor these opinions tend to hold on to them for quite some time in comparison with other methods of inequity reduction (Redmond, 2015). 

Organizational Applications:

Because individual views of equity, inequity and comparison others are subjective, equity theory is less likely to be utilized in the workplace (Redmond, 2015). Increasing employee motivation should still be a priority for employers. Maintaining equity in the workplace allows for higher employee achievement, retention, and attracts better talent (Johnson, n.d.). Avoiding underpayment (Redmond, 2015) and offering competitive salaries both within the company and industry are ways to lessen feelings of inequity.

When underpayment occurs, employees may feel unmotivated and undervalued. Employers may see an increase in employee theft and a decrease in productivity (Redmond, 2015). The American Management Association estimates that employee theft costs American businesses more than $10 billion per year (Greenberg, 1990). The more exploited a worker feels, the greater the chances become that they will take action against a company to correct for their perceptions of inequity (Greenberg, 1990).

Offering competitive pay is a way for employers maintain stability and attract top talent (Kokemuller, n.d.). It is critical that employers regularly review their jobs and functions and compare them to similar positions of competitors, as this will allow them to emulate increases and current pay standards in the industry (Kokemuller, n.d.). It is also imperative that employers focus on employee development and other incentives, as competitive pay without required performance may create a lack of motivation (Kokemuller, n.d.).

Employers should also consider allowing employee participation in decision making processes (Redmond, 2015). Employees who are allowed to participate are more likely to implement those decisions they have made themselves, and participation is known to foster both communication and cooperation amongst each other. (Levine, 1999). Employee participation may also lead to a sense of pride, achievement, and increase employee loyalty (Levine, 1999).

Studies of Equity Theory:

Case studies have been conducted by I/O psychologists in an attempt to understand how equity theory works within organizations. The first study conducted in 1988 took advantage of the fact offices at a company were being refurbished. Researchers were allowed to manipulate the size of temporary offices employees were reassigned to while their offices were being renovated.

The study predicted that employees reassigned to offices of higher status would be more productive than those reassigned to offices of equal-status employees (PSU, 2015). Workers reassigned to offices of lower status were expected to be less productive than those assigned to equal status offices (PSU, 2015).

The study’s hypotheses were strongly supported, and the reaction to inequity was proportional to the magnitude of [the] inequity experienced” (PSU, 2015). For instance if an employee who normally occupied a high status office was moved in to an office that is much smaller (and lower in status) the employee did significantly worse. The study also found some support that employees who were used to small offices moved in to large (higher status) offices performed better (PSU, 2015).

A second study conducted in 1990 measured how changing pay to factory workers would correlate with theft within the organization. In this study psychologists hypothesized that “employee theft is related to feelings of injustice” (Greenberg, 1990). The study took advantage of a factory who had to temporarily cut pay due to the loss of two large contracts. The factory was comprised of two plants. In Plant A, a valid explanation for the pay cuts was provided. “The tone of the presentation was such that a great deal of respect was shown for the workers, and all questions were answered with sensitivity” (Greenberg, 1990). However in plant B an inadequate explanation was given. “No expressions of apology or remorse were shared, and the basis for the decision was not clearly described” (Greenberg, 1990).

The results of the study revealed that the pay cuts were associated with increased stealing by factory workers (PSU, 2015). Plant A experienced a small increase in theft, but Plant B experienced almost a “three-fold increase in theft” (PSU, 2015). When pay returned to the original level, theft rates returned to their pre-cut level (PSU, 2015).

A third study conducted on professional sports players explored the effect equity theory has on individual performance in a pay for performance context in professional baseball and basketball. “It was hypothesized that pay-for-performance contingencies would lessen the effects of individual under reward on individual performance” (Harder, 1992). Furthermore the players who felt under rewarded were hypothesized to act selfishly and behave less cooperatively.

The study found that during play under rewarded players would take more shots and attempt to exhibit more selfish behavior whereas over rewarded players were more likely to be cooperative and contribute more in the way of non-scoring performance.  

 

While working for a retail company at a local shopping mall, Sarah and her co-workers earned a commission on all of their sales on top of their normal hourly wage. Customer service skills, sales experience, and motivation were all inputs that Sarah and her co-workers brought to the job, while commission sales, job security, and feelings of accomplishment were outcomes, or benefits that Sarah and her co-workers received from the job. During the summer season, Sarah perceived her job to be positive and equitable, as the input-to-outcome ratio was balanced. She and her co-workers, having the same sales and customer service experience, were paid equally and the hours were evenhanded. During the holiday sales rush, however, Sarah's outcomes began to fall short; management decided that a substantial commission bonus would be added to all sales earned during one specific daily shift, and scheduling started to appear in favor of certain employees. This caused an imbalance of equity.

Sarah's perception of equity stemmed from standards she had established with her co-workers, or comparison other. She and her co-workers worked similar hours and made similar wages, so she perceived the ratio to be fair. During the holiday months, though, Sarah struggled with underpayment inequity because her inputs and outcomes were less favorable than the ratio of her co-workers (comparison other). Sarah found it difficult to understand why she should put in the same amount and types of effort (input), but receive dissimilar outcomes - in this case, wages. Sarah would be considered Equity sensitive because she wants the ratios to remain balanced so she looks for a way to make that happen.

Behavioral Ways to Reduce Inequity:

Out of the two main categories of options to reduce inequity (behavioral and cognitive) behavioral is the much more likely of the two.  Sarah has many options to choose from, some of which are positive while others are negative (Penn 7).  If Sarah becomes bitter and frustrated at the situation, she may choose one of the negative options such as slacking off at work, showing up late, or leaving early.  However, due to Sarah's position being based off of commission, these options are probably not very likely, as it would only make her outputs even less.  

A few positive options Sarah can choose to reduce her feelings of inequity are selling more items to earn more commission, or she can work more hours to reach the desired outcome that is comparable to her co-workers. Another way to reduce her feelings of inequity is to ask to speak with her manager and see if she can get a raise.

Sarah could also opt to talk with the comparison others and try to convince them to give up the shift on which they would make the commission bonus.  Perhaps the comparison other has children or Sarah knows some personal info about them she could leverage to talk them into giving up the shift?  By convincing the comparison other that they could use the time to spend with kids, spouse, or getting other things done, she may open up the opportunity for herself to get placed on that shift.  

Finally, if Sarah exhausts all of her above options and none of them worked to reduce her feelings of inequity, as she perceives it, she could quit the job.  However, this is usually the last resort people choose and unless the inequity is extreme, it most likely would not be the best option for Sarah to choose (Penn 7).

Cognitive Ways to Reduce Inequity:

When it comes to reducing perceptions of inequity cognitively a person will often do this unconsciously, without necessarily planning or purposely evaluating ways of reducing the inequity cognitively.  In many situations a person will "distort the view of one's own inputs and/or outcomes" without even giving it a second thought, especially if this person is non-confrontational and just wants everything to go smoothly (Penn 8).  So, if Sarah were to choose this path of reducing her inequity she has several options to choose from:

Sarah may think to herself, “I get paid pretty well for not doing a lot of work." Another way for Sarah to regain equity is by telling herself, “The employees that work during the holiday sales rush have to deal with a lot more than I do and they also have to do a lot more work during their shift." Sarah can also change the comparisons she is making between her and her co-workers to that of other employees in the mall whose output is less than or equal to hers.

Sarah could also consider the fact that the specific shift which is going to receive substantial commission bonuses may be working during rush hours and heavy sales periods where they would be working substantially harder during those hours, so the inequity in pay could be justified that way in her own mind.  When it comes to certain employees getting preference for scheduling during those periods, she could cognitively choose to believe that perhaps those employees work better under pressure and are better suited to handle the rushes during that shift.  

These options may not be viable or reasonable to Sarah, depending on how she perceives her own inputs, especially in comparison with her coworkers given that equity theory is based completely off of social comparisons, or how we determine what is fair or just as compared to others (Penn 2).  However, if Sarah has a tendency to "write things off" and be more benevolent she may easily or even automatically choose one of these options.

Solution:

Sarah choose to use cognitive strategies to reduce the inequity. Using this type of strategy helps reduce any risks that would be caused if she had changed her behavior. Sarah thought to herself, “I don’t have to restock merchandise, I get to just chat with customers so my pay is pretty good for this job." She also told herself, “Wow, the people that work on the holiday rush shift have a lot more customers and product to deal with." Using the cognitive strategy works well for this situation because it is successful during short-term situations. Because the holiday rush only occurs for a brief time period, a cognitive solution will suffice. When the holiday rush ends, things will go back to normal, and the input-to-outcome ratio will return to normal.

 

References:

Courses.worldcampus.psu.edu,. (2016). Penn State WebAccess Secure Login:. Retrieved 7 February 2016, from https://courses.worldcampus.psu.edu/sp16/psych484/001/content/lesson05/lesson05_02.html

Greenberg, J. (1990). Employee Theft as a Reaction to Underpayment Inequity: The Hidden Cost of Pay Cuts. Journal of Applied Psychology, 75(5), 561-566.

Harder, J. W. (1992). Play for pay: Effects of inequity in a pay-for-performance context. Administrative Science Quarterly, 37(2), 321. Retrieved from http://search.proquest.com.ezaccess.libraries.psu.edu/docview/203952976?accountid=13158

Johnson, S. (n.d.). The advantages of equity in the workplace. Retrieved February 9, 2016, from http://work.chron.com/advantages-equity-workplace-2635.html

Kokemuller, N. (n.d.). Advantages and disadvantages of competitive pay policies. Retrieved February 9, 2016, from http://work.chron.com/advantages-disadvantages-competitive-pay-policies-7238.html

Levine, D. I. (1999). How business and employees can both win: Advantages and disadvantages of employee involvement. Retrieved February 9, 2016, from http://irle.berkeley.edu/cohre/levine/adv.html

Mindtools.com,. (2016). Adams' Equity Theory: Balancing Employee Inputs and Outputs. Retrieved 7 February 2016, from https://www.mindtools.com/pages/article/newLDR_96.htm

MSG Management Study Guide. (2016). Retrieved February 09, 2016, from http://www.managementstudyguide.com/equity-theory-motivation.htm

Penn State University World Campus (2016).  PSYCH 484 Lesson 05Equity Theory:  Is what I get for my work fair compared to others? Retrieved on February 10, 2016 from: https://courses.worldcampus.psu.edu/sp16/psych484/001/content/lesson05/lesson05_01.html

Stacey Adams equity theory | Employee motivation theories | YourCoach Gent. (n.d.). Retrieved February 09, 2016, from http://www.yourcoach.be/en/employee-motivation-theories/stacey-adams-equity-theory.php

The Equity Theory– Principle of Balance, Fairness, Justice… In The Workplace: Workers Perceptions About Fairness Does Matter…. (2014). Retrieved February 08, 2016, from http://bizshifts-trends.com/2014/08/06/equity-theory-fairness-justice-business-workers-perceptions-fairness-workplace-matter/

WebAccess. (n.d.). Retrieved February 09, 2016, from https://courses.worldcampus.psu.edu/sp16/psych484/001/content/lesson05/lesson05_06.htm

 

 

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