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Case Study: Equity Theory



Situation: Underpayment Equity


Workers Bill and Ted have been working for the same company, same position, for over a year now. Until recently, Ted is now experiencing an inequity and perceives that his input-to-outcome ratio is not equivalent to Bill’s input-to-outcome ratio, even though they are in the same position and pay-grade. Although, both Bill and Ted are paid on a salary basis, Ted believes that he works more hours per week compared to Bill, and is not fairly recognized nor compensated for his additional efforts. Therefore, Ted’s perceptions of underpayment inequity will motivate his behavior to restore equity.

Figure 1: Is an illustration of Bill and Ted’s input-to-outcome ratio. 






       According to figure 1, Bill and Ted’s inputs are equally qualified. However, the outcomes section shows that Ted typically works 10+ additional hours per week compared to Bill.  Ted’s 10+ additional hours per week equals out to 520 more working hours a year (2,600 hours annually), compared to Bill’s yearly working hours (2,080 hours annually). At this point, Ted is feeling that he is receiving less amount of outcome, for the same amount of input, in comparison to Bills input-to-outcome ratio.

Organizational Application

         Maintaining an equity balance in an organization is a very complicated process and sometimes unavoidable. The case study illustrates the internal conflict that employees face in these circumstances. The course content web site states, “Companies should do their best to maintain internal equity in pay as well as be competitive with other companies doing similar work and in the industry. However, given that the comparison other that employees use could be anybody or any standard, it is very difficult in practice to administer rewards that will be perceived as equitable by all employees. A variety of factors result in feelings of inequity, and many of these factors may be beyond a manager's direct control (World Campus, p.4, 2013).” In this case, Ted’s perception is that he is under paid for the amount of work hours conducted. As a result, this can lead to negative behavior such as theft and poor work performance (World Campus, p.3, 2013). In order to combat this inequity, a company can implement multiple things. First, organizations can provide employees with an appeals process. Second, companies must maintain consistency with procedures and rules. Lastly, organizations must make decisions in an unbiased manner (World Campus, p.3, 2013).

Greenberg’s 1988 Study

      In 1988 Greenberg did a study that examined changing inputs as a response to inequity (World Campus, p.11, 2013).  His study was different than many before his because the input change was not monetary.  His hypotheses were strongly supported, and he discovered that the reaction to inequity was proportional to the magnitude of inequity experienced (World Campus, p.11, 2013).  If we look at the example of Bill and Ted and would change their inputs to read Ted has 10 years of experience and Bill only has 5 years but keep the outputs the same Ted is going to feel even greater inequity then when their inputs matched.

Figure 2: Is an updated version of figure 1 with Ted’s Input’s adjusted.





      This would be keeping Ted’s reaction proportional to the magnitude of inequity experienced.  This could be applied to a group of workers whose inputs may staircase but whose outcomes are the same.  Each person whose a step below the other in terms of inputs would have a reaction based on the inequity they are experiencing in relation to their comparison others.  One of the weaknesses to Greenberg’s study was that it only lasted for a short period of time (World Campus, p.11, 2013).  This is known to be a criticism of equity research in general, and there is not much research on long-term reactions to inequity (World Campus, p.11, 2013).  Even though the timing was a weakness Greenberg’s study showed its support for equity theory even was using non-monetary outcomes (World Campus, p.11, 2013).

Consequences of Inequity

       Because inequity can cause employees to be jealous or resent others for receiving greater or worse compensation for their work, there are consequences for inequity in the workplace.  A satisfied employee would probably perceive their input-to-outcome ratio as equal to other employees; hence, state of equity and perceptions of equitable payment. An unsatisfied employee can either experience underpayment inequity or overpayment inequity (World Campus, p.6, 2013).

       Underpayment equity, results when an employee perceives that they are receiving less amount of outcome, for the same amount of input, in comparison to other employees. When an employee compares himself/herself to other comparable employees, perceptions then become analyzed on how their input-to-outcome ratio compares amongst all other employees. Overpayment inequity is similar to the notions of underpayment equity, in that, instead of the comparable employee having a better outcome, they have a worse outcome. As a result, employees who experience overpayment equity tend to have feelings of guilty (World Campus, p.6, 2013).

       Inequity is actually needed to motivate others to get where they are. If there were no existence of inequity in the workplace, there probably would not be promotions, hard-workers and low turnover rates. There are some employees that are actually OK with being at a different level. These employees are referred to, as “benevolents”. Employees that are considered benevolent are OK with underpayment inequity, and feel they are lower than the others. On the other hand, Entitleds affirm with overpayment equity, and believe that they are owed the money they work for and deserve the overpayment status  (World Campus, p.6, 2013).

   Challenges: Restoring Equity 

Because Ted now perceives that there is an inequity he will try to restore the equity balance. Ted has both cognitive and behavioral options available to help him restore the feeling of equity. Behavioral responses could be one; Ted may attempt to alter his outcomes by demanding a raise. Two, Ted may become disgruntle and defraud the company, in efforts to psychologically satisfy the feelings of inequity. This may also include stealing from the company.  A third behavioral response may be that Ted leaves the company altogether (World Campus, p.7, 2013). Cognitive options that Ted may use to alter the inequity include Ted altering his inputs by decreasing his work performance, i.e. being late, calling out sick, or leaving work early (World Campus, p.8, 2013). Lastly, Ted may come to the realization that Bill produces equally or more in a faster amount of time than Ted. Therefore, while Bill works 40 hours per week to complete a task, Ted has to work 50+ hours a week to accomplish that same task.


Figure 3: Is an illustration of the various ways for restoring equity in the workplace.



                                 Restoring Inequity




       Equity theory deals with social comparisons in the workplace (World Campus, p.2, 2013).  Accordingly, these social comparisons generally involve perceptions of inputs and outcomes. The ratio of input-to-outcome is then analyzed by one employee, which is then used to compare to another employee with equal inputs/outcomes. Therefore, when we consider workplace fairness related to inputs and outcomes, organizations can benefit by creating an equitable environment for pay, promotion, and rewards.  In Ted and Bill’s case, it appears that the organization was not tracking the difference in working hours between these two employees.  Although, Ted and Bill are salaried paid employees, with equal inputs and outcomes, the equity theory emphasizes the importance of a reward system that is perceived as fair by all employees (World Campus, p.12, 2013).



World Campus, PSU (2013). Lesson 5: Equity Theory: Is What I Get For My Work Fair Compared to Others? pp. 1-12

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