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Introduction 

Equity theory plays a key role in workplace motivation, attitudes, and behaviors (PSU WC, 2012).  While primarily a cognitive principle, J. Stacy Adams based the theory on social justice and the basic idea that employees rate social fairness on their cognitive comparison to others (PSU WC, 2012). 

Individuals judge their own value such as skills, education, and experience as inputs, while judging their perceived benefits such as job security, pay, sense of accomplishment as outcomes (PSU WC, 2012).  This forms the basic premise of what is received for what is contributed in the workplace.  Individuals cognitively determine their perceived sense of equity or inequity based on this value proposition through the use of a ‘comparison other’, which is the defined as the person or standard used as the benchmarking criterion (PSU WC, 2012). 

The two primary types of inequity, underpayment and overpayment, occur through variances of the individuals perceived ratio of inputs to outcomes versus that of the comparison other (PSU WC, 2012).  Underpayment or negative inequity exists when an individual feels that their comparison other is receiving greater benefit from the same level of input that they exert (PSU WC, 2012).  A common example is feeling as though you work harder than someone who is receiving a higher wage.  Underpayment or negative inequity also exists when an individual feels that they are exerting more effort or inputs than the comparison other and receiving the same level of benefits in terms of pay, breaks, advancement opportunity, etc.  Overpayment inequity is the feeling of receiving greater benefit for the level of input versus the comparison other.  While this opposing scenario is acknowledged, it is not present in this case study. 

Case Study

OTM Company underwent an expansion two years ago that doubled its workforce during a time when the country was in recession.  It was an employers’ market considering that the company averaged 100 applicants for each open position.  Jane was hired at the same time as many other team members for various hourly positions in operations.  Jane has previous experience in operations and customer service in a similar industry, but she had been unemployed for the last year after the company for which she was working went out of business. 

Jane was successful in her operational role, but she expressed interest in sales.  Apparently that was Jane’s intended career path at her previous place of employment.  An opportunity surfaced a year later and Jane was promoted to a sales manager.  She was given an increase in pay and her status was changed from non-exempt (hourly) to exempt (salary).  Although this was Jane’s first experience in sales, she excelled in the role.  She regularly exceeded her sales quota and worked about 50-60 hours per week due to the added administrative workload created by her successful sales efforts.  Her superior questioned her about working so many hours and suggested that she delegate the administrative part of her workload.  Jane was grateful for the administrative help, as this was the least favorite part of her new position.  At the same time, she asked her superior if he would be open to adding a bonus plan to her compensation.  She stated that her previous employer compensated their sales manager above any other work group in the company.  Even though Jane’s supervisor felt that her argument regarding Jane’s previous employer was weak, he liked the idea of performance based compensation.  He told her that he was working on a companywide bonus program that would be instituted to coincide with her annual performance review that would be taking place in three months.  

Jane continued to achieve her sales quota, but she also continued to work about 50 hours per week even though her new assistant also worked 40 hours per week.  Jane’s supervisor met with her on a weekly basis and offered assistance on delegation and training.  Jane assured her superior that she only worked over 40 hours when out-of-town customers were visiting and that she realized when she became a salaried employee that she would need to work over 40 hours when business need dictated.  She also stated that her administrative assistant had a full workload of duties and was of help to her.

One month prior to Jane’s annual performance review, OTM Company was chosen by the U.S. Department of Labor to be one of two divisions of their parent company, MTO Corporation, for a random labor audit.  Jane was selected as one of seven team members to be interviewed by the auditor.  When the employer was given the results by the U.S. Department of Labor, they were told that Jane was owed $10,000 in back wages for overtime and that she did not qualify as a salaried employee since that majority of her account base was called on via telephone instead of in person. The employer was given a copy of the affidavit signed by Jane seeking compensation for back wages.  Jane voluntarily shared with her supervisor that she was seeking back wages as a means to secure additional compensation for her sales performance.  

Equity Theory Application

If you recall in the introduction, workplace motivation, attitudes, and behaviors stem from the premise of perceived fairness (PSU WC, 2012).  In this case, Jane perceived that her employer treated her unfairly.  Additionally, the identity of the comparison other was not readily apparent.  There were no other team members in a comparable role.  There was only one other team member that was hired at the same time and subsequently promoted.  Of her peer group of middle managers, Jane was comparably compensated.  Jane had an expectation that the sales team should be the most highly compensated based on a precedence set by her previous employer.  However, what we learn in equity theory is that facts are not the driving factor, only the employee’s perception of the facts, that drive these comparisons.   In this case, Jane’s comparison other was the sales manager at her previous place of employment.  Jane was experiencing underpayment inequity due to the fact that she felt as though she was working longer hours and exceeding her sales quota while receiving the less compensation than her comparison other. 

What caused her to seize the opportunity to pursue compensation through the U.S. Department of Labor?  This had to do with the level of inequity that she perceived. Equity theory tells us that the level of distress experienced is proportional to the level of inequity that is perceived (Levitt, 1997).  According to Adams (1965), this serves as motivation to restore equity through an array of means, including altering the compensation outcome as demonstrated in this case.  Basically, the greater the anger that is experienced over the perceived inequity, the greater the motivation to restore equilibrium (PSU WC, 2012).  Jane was so stressed by negative inequity that she reported back wages in the form of unpaid overtime as a means to settle the score with her employer even after she reassured her supervisor that she was minimizing her work hours.  However, did Jane have other options?

Behavioral and Cognitive Tools for Reducing Inequity

In Jane’s situation she chose an opportunistic way to change her outcome to match her perceived inputs (PSU WC, 2012).  Certainly other workgroups have sought to unionize as a means to secure fair wages.  Others have resorted to stealing from the company in order to match outcomes to their inputs.  In Jane’s case, she could have approached her superior about considering a bonus based on her performance over the previous year instead of accepting his three month delay in initiating a bonus program.   

Another behavioral option is to adjust inputs (PSU WC, 2012).  In Jane’s case, limiting herself to a 40-hour workweek or delegating additional duties to her administrative assistant.  If you recall, Jane’s supervisor actually suggested that she adjust her inputs in this way.  While it is not normally part of the theory that the employer condones the adjustment of inputs, this employer was giving Jane acceptable parameters by which to reduce her workweek and delegate part of her workload.  An extreme behavioral option would be to ‘leave the field’ by finding a more equitable job.  This would not seem like a likely option for Jane considering that she seems pleased with her job otherwise.      

There are various cognitive options to reduce inequity including mentally adjusting inputs, distorting inputs or outcomes of comparison others, or changing comparison others (PSU WC, 2012).  Jane could focus on the freedom that she has in being on the road doing sales and reconsider that although she does not feel like she is being compensated adequately, she can make her own hours and decide where and when she will work each day.  If Jane were comparing her compensation to the sales manager at her previous employer, she may realize that the sales team was more experienced or she may even consider the fact that overcompensating sales managers may have contributed to the company closing.  Jane could also change her comparison other altogether.  If she compared herself to others that were hired around the same time, she would see that she is the most successful and the highest compensated of the group. 

Conclusion

Equity theory deals with distributive justice in the workplace (PSU WC, 2012).  According to Locke & Henne (1986) equity theory does a better job at explaining past behavior than predicting future behavior.  However, when we consider the definition of distributive justice from a standpoint of workplace fairness related to outcomes and results of reward distribution, organizations can benefit by creating an equitable environment for pay, promotion, and rewards.  In Jane’s case, it appears that the organization was in the process of instituting a companywide bonus program.  However, it would have been an interesting test of Adams’ (1965) caution for fair compensation to determine whether Jane’s perception of underpayment inequity would have existed had the reward program been in place prior to her promotion to sales.

References

Adams, J. S. (1965). Inequity in social exchange. In L. Berkowitz (Ed.), Advances in experimental and social psychology (pp. 276-299). New York: Academic Press. 

Levitt, K. J. (1997). The effects of procedural justice, underpayment inequity and personality on task performance. Stevens Institute of Technology). ProQuest Dissertations and Theses, , 143 p. Retrieved from http://search.proquest.com/docview/304393883?accountid=13158. (304393883).
Locke, E. A., & Henne, D. (1986). Work motivation theories. In C. L. Cooper & I. T. Robertson (Eds.), International review of industrial and organizational psychology (pp. 1-35). Chichester, UK: John Wiley.

Pennsylvania State University World Campus. (2012). PSYCH 484, Lesson 5: Equity Theory: Is what I get for my work fair compared to others? Retrieved on September 22, 2012 from https://courses.worldcampus.psu.edu/fa12/psych484/001/content/lesson05/printlesson.html

Stecher, M.D., & Rosse, J.G. (2007). Understanding reactions to workplace injustice through process theories of Motivation: A teaching module and simulation. Journal of Management Education, 31, 777-796

 

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