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  • Fall 2013 Equity Case Study
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Introduction and Overview: 

Do individuals ever admire a person for their level of achievement? How about resented them for it? Chances are, that at several points in their life, they have compared themselves and/or level of success with others they have encountered. This is nothing out of the ordinary considering people experience individual levels of this each and every day. Everyone holds perceptual differences of what they consider fair in all aspects of life. In the work environment however, their perception of fairness may change more frequently. Beliefs about fairness have been proven to affect a persons’ level of motivation, attitude, and ultimately their behavior. (PSU, L5, pg.2) Meshing these attributes will determine just how hard one will work in order to get what they want.  These concepts are the basis of the equity theory.

Equity theory, as proposed by J. Stacy Adams in 1965, explores the world of social comparison and the ways in which an individual maintains equality  ("fairness"). These social comparisons aren’t bound just to those who are in the same field or profession, but can reach individuals in a variety of stations throughout life. Any individual who he or she compares themselves to is known as the “comparison other.” While comparing themselves to “the other”, chances are that they will experience some level of inequity. Inequity exists when one individual perceives their situation as inferior, or supreme, to that of another individual. Their personal perception of fairness strongly influences how they respond to inequity. Specifically in the work environment, employees find themselves comparing the relationship of what they put into their work, and what comes out of it to those around them.

Regardless of the situation, one perceives equity as a balance of inputs and outcomes, a ratio of effort to reward. When analyzing a work-related issue, inputs can be considered the valuable cognitive or behavioral efforts the employee contributed to a task and/or organization. Examples of inputs include but are not limited to: education, experience, knowledge, work ethic, intelligence, skills, problem solving, communication, teamwork, and leadership. Outcomes define the benefits an individual feels they receive from the organization in exchange for their perceived input. Examples of outcomes are wages, health care benefits, professional development, opportunities for advancement, job security, strong leadership, etc. They compare their ratio of what they bring to the job and what they get out of it with what others bring to the job and get out of it. (PSU, L5, pg.4, 2013)  The key in understanding The Equity Theory is that it isn’t the accuracy of the compared ratios that matters, but the perception of the comparison being made.

There are three different classification for individuals when reacting to inequity in their workplace:  benevolents, entitleds, or equity sensitivesBenevolents are individuals who tend to be unselfish and very giving (altruistic tendencies or motives).  Their input/outcome ratio tends to be less than their comparison other.  Entitleds are individuals who want their input/outcomes to be higher than the comparison other no matter how hard they work in comparison to another person because they feel the world/they are owed something in life. They would be quite upset if they were not ahead in the situation.  Lastly, equity sensitives are individuals who think that everyone should be equal in the input/outcome ratios as the comparison other.  They are upset either way -  if they are over-rewarded or under-rewarded.  (Huseman, Hatfield & Miles), 1987).

Equity theory outlines several cognitive and behavioral approaches that help balance feelings of inequity. Behavioral actions include altering a person's input to what is fair when considering the output benefits being received. This example is likely to occur when there is a problem of being underpaid (underpayment inequity) for the amount of work or experience that is contributed. In the opposite situation of overpayment, the individual may be motivated to increase their input to match the output provided by their employer. When the individual encounters a comparison other who is making a higher input contribution, but is making the same pay, the individual may persuade them to lessen their efforts in order to keep with the group norm. Finally, the last behavioral method taken to reduce perceived inequity would be to leave the position entirely. This action could provide greater opportunities in terms of pay (outcome) or a chance to exhibit advanced skills (input). Withdrawing could influence a manager or supervisor to evaluate how much they value an individual's input and reward them with more responsibility, pay, or other acknowledgments. This final example is a great risk and could lead to consequences such as demotion, suspension or termination.

Individuals can manage their own perceptions through a number of cognitive approaches.  The first cognitive approach involves the individual altering their perception of what they have contributed and are receiving in return. Examples include: “I do only have 2 years of experience compared to Suzy’s 5 years of experience.” (Underpayment) & “I spend longer hours at the office, and handle more client affairs.” (Overpayment). The second cognitive approach outlined by Adams (1965) details balancing the ratios by distorting the inputs and outcomes of the comparison other. For example, “Dylan was assigned more cases during the last quarter.” (input) or “Dylan does have a larger financial responsibility at home.” (outcome) The last cognitive approach suggests altering who an individual chooses as their comparison other. This strategy could depend on the time and state of the economy. Perhaps the economy is down, as it is today, and an individual may know of other people in similar fields who have lost their jobs due to downs-sizing. This person might change their comparison other to people similar to them and are grateful to just have a stable job where they are able to support and provide for themselves and their family. In this instance, a person's feeling of inequity due to any feelings of underpayment may drastically reduce or disappear completely. There are usually a variety of individual ratios existing in one workplace or profession and comparisons will inevitably be tipped to either side of the scale based on a variety of factors. It can be very difficult for an individual to change who they compare themselves to. However, this cognitive effort can provide many with a greater chance at experiencing equity in the workplace and in life.  Strategies for reducing feelings of inequity require much less energy and effort to accomplish since it is only cognitive in nature and doesn't require any actual noticeable behavior/action changes.

Case Study: Snack Food Snafu

In 2001, Company X, manufactured a highly desired snack food in their factory. The production of this item occurred, five days a week, 24 hours a day. Production needs quickly escalated. Company X officials soon realized that in order to meet consumer demand, additional work shifts must be implemented. The decision was made to create two new shifts that would take place over the course of every weekend, until further notice. Now that the company added weekend hours, they needed people to work them.

Each additional shift required the combined work effort of six employees, four operators and two servicers . The operators were in charge of running the manufacturing equipment. They were paid ~$18/hr to keep the machines running. The servicers were responsible for stocking consumable materials in the equipment, in order to continue production. Servicers were paid ~$12/hr. 


Instead of equally distributing additional shifts to both positions, Company X decided to ask for volunteers. They proposed the opportunity to work additional operator shifts to some of the top servicers. The servicers were quick to accept this offer not only because it meant extra money in their pockets, but because there was an opportunity for them to display their higher skill set in hopes of a future promotion. The operators considered this new offer unfair. They came to the conclusion that Company X was not presenting operators with the equal opportunity for over-time because of the pay difference in positions. More than likely, the operators perceived officials formed this decision because it was much cheaper for the company to pay the servicers.

The Operators had a sudden shift in behavior. The operators perceived that the servicers were getting rewards that they were not entitled to.  After all, they had not gone to operator school or worked on the production line as long. In addition, they also felt cheated for not being granted the same volunteer opportunities for extra shifts, especially since they were operators and the servicers were clearly not.  Those once dedicated to Company X began calling in sick during their regular shifts. At times they even reduced their own level of effort in order to increase the amount of time needed to reach company goals.  Raising the level of required time resulted in an inflated number of positions that needed to be filled. 

For six long months, the servicers continued to sacrifice their weekends in hope of getting a raise to operator level pay. They believed they were deserving of this raise because of their steady contributions to the company. When servicers asked for a raise, they were told that Company X was unable to afford this type of promotion at the moment. Officials explained to the servicers that funds were insufficient due to the excessive amount of overtime they were paying to cover the production requirements. 

Because the company was unable to provide proper rewards to these people, the servicers stopped volunteering for additional shifts. For months they have put countless hours into this company, hoping for recognition of their efforts. They perceived that Company X strung them along, offering them overtime in the position of an operator, to make them believe that if they helped the company out, they would receive something beneficial in return. Servicers came to the conclusion that working at an operator position for no raise in pay was certainly an example of Company X taking advantage of their situation.


Result (once procedural and distributive justice had been implemented): Company X now had to primarily ask operators to volunteer their time on the weekends to fulfill the newfound operator demand BEFORE they could ask a servicer. Another rule was conformed explaining, that if a servicer performed the work of an operator on the covering shift, or at any give time, points would be accrued toward eligibility for the next open operator position. 

Applications Of Equity Theory:

Equity theory is drawn from the principle of social comparison. (PSU, L5) The case of Company X and their issues of overtime compensation stemmed from two sides, servicers and operators, making a comparison other. This principle is a formed perception of other party inputs and outcomes:

  • Servicers felt like they could perform the role of operator and were happy to take advantage of the situation. They felt like by increasing their input stake they would be adequately rewarded with a promotion. Their comparative other was the operator role and the higher pay that should come with that position. 
  • The operators felt entitled – deserving the overtime reward due to their expanded skill set as operator. Operators were comparing servicer input (experience, training, seniority), to their received outcome which was overtime pay at 1½. They felt they were unfairly treated for being excluded from the opportunity. 

This type of inequity is called negative(underpayment) inequity – the ratio of operator inputs and outcomes was less favorable then inputs and outcomes.  Adams (1965) states that people will strive to maintain a state of equity and inequity creates a state of psychological tension and dissatisfaction.  Such was the case here. Both parties exhibited behavioral options to equalize their perceived inequity. The operators started arriving late, calling in sick, slacking off, or other behavioral changes to remedy their feelings of inequity. They even tried to convince the servicers to change their behavior by convincing them that they were being cheated by agreeing to do on­e skill set and receive the pay of a lesser skill set. After 6 months with no qualifying incentive, the servicers believed the case of unfairness was true. Why should they continue to do a higher skilled roll and continue to receive inferior pay? They started saying “No” to the voluntary request for overtime.

Negative (underpayment) inequity generally does lead to lowered performance (Prichard, 1969).  As discussed in Greenberg (1990), procedural justice addresses system satisfaction, whereas distributive justice deals with outcome satisfaction. “Clearly, underpayment should be avoided. As seen in the research, employees who feel inequitably treated may attempt to "even the score" in numerous ways, such as lowered productivity and increased theft. Some organizations have implemented two-tier wage structures in which newer employees are paid less than more senior employees for the same work, but these systems are regarded as highly unfair (Martin & Peterson, 1987).” Adams (1965) has helped to direct attention to the importance of compensating workers fairly and to the possible negative consequences of not doing so. (PSU, L5, pg.7)

Equity theory can be a great tool to determine why people behaved the way they did but it is unfortunately not very good at predicting behavior. On­e of the difficulties is that the theory does not specify who the comparison other will be or what way will be chosen to reduce inequity (e.g., changing outcomes, inputs, or the comparison other). (Locke & Henne, 1986) For this reason it has fallen out of favor in organizations and with IO psychologists.

Other Possible Outcomes:

As seen in the case study, the behavioral changes taken by employees in both positions (operators and servicers) could have resulted in several possible outcomes either decided by the owners of the organization of the employees themselves.

  • Termination:  Depending on the success of the company, if they noticed the lack of effort, work ethic, reliability, and production, upper management could have just decided to fire the employees who began behaving like. New employees could be brought in to replace them.
  • Threat of Termination: While the employees view the other as their comparative other at this time, if management threatened to fire those who began to under-perform and their prospects for getting the same of better job were not good, then threatening to fire them would have shifted their comparative other from one another to other people who are unemployed. As a result, their feeling of inequity will be reduced, at least for a period of time due to this new comparative other.
    Cognitive Change: Rather changing their behaviors as employees in both positions did (Operators lowered attendance and work production, Servicers stopped volunteering), a change in their cognitive thinking could have changed. Perhaps the company couldn't afford to allow the operators to volunteer for extra shifts/overtime and if they allowed this, perhaps slight downsizing might have been required and maybe some of the operators may have had to been let go. In this case, operators wouldn't feel as unfairly treated because they don't want anyone to get fired. Secondly, perhaps no one is applying to be servicers and the company can't afford to promote them to operators. If the servicers understood this, perhaps they would feel less inequity.

 

Procedural Justice Applied

Procedural justice is the perception of how fair the decision making process was in determining a course of action.  The perception of fairness had more of an impact on the responses of the operators and servicers that the reality of how the decision was made to select servicers for the extra shift work.  In this case, the servicers did not think that the company approached the decision fairly.  The perception was that the company decided based solely upon the desire to pay less to the workers.  "Responses to inequity in the unfair procedures condition tend to be less positive" (Stecher and Rose pg. 788)...DC - add Leventhal's 6 rules...

Decreasing the Perception of Inequity (Greenberg, 1990)

  • Operators: If management had explained to the operators in detail that the company can't afford the extra money and allow them to work the overtime shifts as well as explain and express to them how they value and appreciate their hard work and value they bring to this company, then the feeling of inequity would be reduced.
  • Servicers: If management had explained to the servicers that the company can't afford to lose them as servicers due to the lack of additional applicants and that they need them in their current positions as well as express to them that they will reward/compensate them in other ways to make up for it, then they will feel valued and their level of inequity will go down.

Conclusion

As illustrated in the case study above, the equity theory emphasizes the impact social comparisons have on people in regards to their individual level of motivation, attitude, and behavior. By understanding what motivates individuals working together in an organization, it allows for a more positive and efficient work environment. However, when the perception of ratios is skewed, some may act in extreme measures, in hope of a restored even playing field. Behavioral and cognitive methods are effective in restoring equity to an environment.

In the case of Company X, the operators attempted multiple methods to restore their perception of equity. One example includes expressing to their counterparts (the servicing crew) to avoid overtime hours because they did not have any real chance of a promotion. This direct behavioral approach is one of the many options outlined by Adams in the equity theory. Within the complex dilemma of an environment full of varying beliefs, many issues of inequity can arise. These issues can eventually be resolved by balancing acts of cognition and behavior. However, these processes are often found uncontrollable by management due to the variety of inequity-based perceptions.

In the case of Snack Food Snafu, we can see that there is a strong perception in inequity and a correlation between the workers' perceived procedural justice and their responses.  We analyzed the situation and came to the conclusion that management could have impacted the workers' responses by implementing a system of decision making and communicating the process with the workers.  This might have resulted in unhappy workers due to the decsion however understanding how the decision was made and the process that was followed could have had a positive impact on attitudes and motivation.

 References:

1) Greenberg, J. (1990). Employee theft as a reaction to underpayment inequity: The hidden cost of pay cuts. Journal of Applied Psychology, 5, 561-568.

2) Huseman, R. C., Hatfield, J. D., & Miles, E. W. (1987). A new perspective on equity theory: The equity sensitivity construct. Academy of Management Review, 12, 222-234.

3) The Pennsylvania State University World Campus. (2012). PSYCH 484: Work Attitudes and Motivation: Lesson 05: Equity Theory: Is what I get for my work fair compared to others?  Retrieved from https://courses.worldcampus.psu.edu/fa12/psych484/002/content/lesson05/printlesson.html

4) 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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