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  • Fall 2016: Equity Theory Case Study
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Introduction

Equity

Equity theory states that a person’s motivation is based on what they believe is fair or not fair compared to others (Pennsylvania State University, 2016).

A funny way to understand equity theory is through the video below. 

 

In the video, Sheldon is almost “obsessed” with the present that was given to him.  The gift was something he really loved and wanted. Sheldon almost felt guilty for receiving such a thoughtful present. In return, Sheldon believed the only way to “make it fair” was to give her an overabundance of gifts. However, it was not enough to satisfy his guilt.  Sheldon is a major germaphobe, and decided to hug her which was extremely difficult for him, however it showed that he was willing to do that in order to reach the level of fairness in return of gifts.  Sheldon, by hugging Penny and giving her all the gifts, was striving to reach a fairness in social exchange.

Equity Theory was developed in the early 1960s by J. Stacy Adams focusing on social justice and the fairness of social exchange; basically what we give and receive from relationships. When applied to place of employment, Equity theory can be seen as a way that an employee attempts to minimize any and all sense of unfairness that may arise (Pennsylvania State University, 2016).  A person’s belief in regards to what they presume is fair or unfair, can greatly affect their motivation, attitude and behaviors in their place of employment.  

Two terms that do a fantastic job of supporting equity theory when applied to place of work is inputs and outputs. The following chart gives a better visual for more in depth understanding.  Inputs are anything of value that you are bringing to the table, hence the arrow pushing downward. Inputs can be anything ranging from experience, education skills, motivation, and so on. An output on the other hand is what you are expecting from what you have contributed; therefore, the arrow is pointing upwards. This can include anything from your pay, job security, opportunities for advancements, and so on (Pennsylvania State University, 2016).

                                   

 

cutcaster-photo-801038390-Equity-theory-business-diagram.jpg

Retrieved from: Cutcaster.com


Underpayment Equity

When it comes to equity theory, inequity becomes apparent when social comparisons are involved. Underpayment Equity (also known as negative equity) is a common type of inequity (Pennsylvania State University, 2016).  Underpayment equity occurs when your ratio is less favorable compared to someone else’s ratio.  For example, let's say that you are starting at a location and you give 50 units of work (your input); something that you are bringing to the job, because of what you bring you receive 50 units of rewards (your outcome). However, you notice that a co-worker is putting 50 units in of work (their input), and mentioned to you that they are receiving 85 units of reward (their outcome), which is more than what they are working for creating a sense of inequity. This is a very common ordeal that happens in everyday life.  One can feel as though the same amount of work is being put in, but your other is getting paid more for whatever reason.

Underpayment equity could also exist when the same amount of reward (outcomes) are given to each party, but the level of what you are putting into the job (inputs) differ with each individual. For example, you and your co-worker could both get the same paycheck every week (outcome) however you put in more hours, stay later and overall have more dedication to the job (input). This can cause a sense of underappreciation and under compensation creating underpayment equity.

 

Overpayment Inequity

Overpayment equity (also known as positive inequity) is exactly what you would think it to be, the inverse of underpayment inequity.  Rather than feeling like your input and output ratio is less favorable than your comparison other, you view them as more favorable.  Refer to the illustration below.  You will see that “self” makes $3 per hour, while the “other” is making $2 per hour.  


When first considering overpayment, one might assume that someone would be happy to make more money per hour (output), and in most cases we are.  How would you feel knowing that you and your coworker were both hired at the same time, do the same work, but you make more than him/her?  Or maybe you were hired and this is your first time working as a project manager but your coworker has been working in the role for 5 years and has incredible experience that he/she openly shares with you and you are making more money than them?  These are both scenarios that can lead to feelings of positive inequity.  Just like underpayment inequity, overpayment inequity is caused by perceptions one has when comparing themselves to the comparison “other.”   

Positive inequity can elicit conflicting experiences...from a justice perspective, people feel uncomfortable about outcomes deviating from equity [but] on the other hand, from a hedonic perspective, people are pleased to be beneficiaries of favorable outcomes (Liu & Brockner, 2015, p.111).   

Equity Sensitivity Construct

As you can see from overpayment and underpayment inequity, how individuals react to situations with perceived equity or inequities can vary. A construct related to equity theory that helps explain this variance is the equity sensitivity construct.  This construct helps to define a sequence of three preferences and their ratios of inputs to outputs compared to comparison others.  In the chart below, you will notice that benevolents (who have less equity sensitivity) have a ratio of less outputs and inputs to those of the comparison other.  Benevolents are those that think more of giving than receiving and do so without ever expecting anything in return (Huseman, et al., 1987).  Entitleds (who are high on equity sensitivity) on the other hand are the inverse and always strive for a greater ratio of outputs and inputs than the comparison other.  Entitleds are getters and therefore prefer to always be on top, wanting and expecting to receive more than others (Huseman, et al., 1987).  The equity theory model is best defined by equity sensitives (centered) and as you can see their input and output ratio is balanced with the comparison other.  Equity sensitives are the individuals that feel guilt when they perceive themselves in a situation of overpayment inequity and distress when in a situation of underpayment inequity (Huseman, et al., 1987).  



There have been a number of empirical studies demonstrating that one’s equity sensitivity, which can range from benevolent to equity sensitives to entitleds, can predict a variety of work outcomes (Shore, et al., 2006).  IN varying situations one could see benevolents that feel like they are receiving too much output volunteering for more work in order to give more input or entitleds that feel they are not getting enough output negotiating for a raise (Bing & Burroughs. 2001).  You might even see equity sensitives that are unable to find a good balance leave the work situation completely.  


Case Study

Mr. Jones has worked at a Fortune 500 organization for approximately 3 years in a leadership position. He manages a team of twelve talented individuals that provide technical support for the company on a global basis. In addition to his team, Mr. Jones works with one of the organization’s Global Architects on a daily basis. The architect is an individual contributor and he does not manage a team. They are considered peers and they report to the same Director.

The organization completes performance evaluations annually and each individual team member is rated between 1 and 5; 1 representing extraordinary results and 5 representing significant improvement required. A rating of 3 (strong results) is common, but individuals are financially motivated to target a better rating. A better rating will equate to a larger salary increase and bonus payout. Mr. Jones and his peer have had casual conversations about their performance evaluations. A common theme with every performance evaluation is that Mr. Jones will receive a rating of 3 (strong results) and his peer will receive a rating of 2 (very strong results).   As much as Mr. Jones would like to have a rating of 2 (very strong results), he agrees with the rating that his peer has received. The equity is understandable and it does not impact his motivation or behavior in a negative way. The inputs that are provided by the architect are invaluable to the organization. He is extremely outgoing, technical, and always available. The outcome is easily justified and the rating of 2 is well deserved.

Although Mr. Jones agrees with the performance evaluation there is still a feeling of underpayment inequity that is related to a separate area of his professional obligations. During the 3 years that Mr. Jones has worked at the organization, the individual that he has reported to in the Director role has changed multiple times. In addition, there have been times that the Director role has remained vacant for months. When the role is vacant, Mr. Jones absorbs the additional workload that would be performed by the Director. When the position is filled some of the additional work load is transferred back to the new Director, but not all of it is accepted. Some of the directors have selected the tasks that they were willing to manage and requested that Mr. Jones maintain the others.

Mr. Jones has increased his area of responsibility over the years and he has acted as interim Director multiple times. Although he has received recognition from members of the leadership team he has not been given an opportunity to perform the Director’s role in a full time manner. The only differentiator that Mr. Jones recognizes is education. At a minimum, the directors at this organization have an undergraduate degree and some hold a PhD. Although Mr. Jones understands the value of education he perceives it as a goal that can be achieved over time. He does not believe it should be used as a roadblock to prevent professional advancement. After careful consideration Mr. Jones has decided to leave the organization.    

Analysis



From this case study we can see several layers in Mr. Jones perceived (in)equity. In his peer relationship, with the architects, he believes there is a level of equity between their outcomes. While his outputs are not the same as his peer, he is able to recognize that his inputs are also not equal. Mr. Jones acknowledges that his peer contributions are more significant than his. Therefore, leaving him with a perception of distributive justices. Distributive justices are seen through his comprehension of, “fairness of the outcomes and the results of reward distribution (Folger & Cropanzano, 1998)” (Pennsylvania State University, 2016). He desires a rating of 2 or higher, yet he is satisfied with his rating and sees a sense of fairness in how the rewards were distributed. Since equity is based on social interactions, which are fluid in nature, his perception of equity might shift. However, at this time he agrees and accepts his current results are in alignment with his efforts.

However, one's sense of equity is not limited to just ones equal. Our impression of equity can be influenced through many social experiences. Equity theory states that “people strive to achieve a state of equity and fairness in order to maintain their internal and psychological balance (Adams, 1965)” (Pennsylvania State University, 2016). When an imbalance occurs due to social experiences, employees are motivated to bring back the balance to avoid mental discomfort. The inequity creates a psychological tension and employees are motivated to resolve that. Mr. Jones has lost several superiors over the last 3 years. With each exit, he has taken on more additional work, with no change in pay or position. He has begun to feel more and more dissatisfied, creating a perception of underpayment inequity. His comparison others have altered. As Mr. Jones compares himself to the past directors, he no longer sees validity in the ratio between their inputs and outputs. While some have had slightly more education, he feels this does not justify the results. 

It is apparent that Mr. Jones is an equity sensitive and needs to find a balance.  There are several techniques which Mr. Jones could use to adjust his comparison other to reduce the inequity he feels. Mr. Jones could arrange his inputs in a way that matches his outputs; he could be arriving late, leaving early or even slacking off during the workday. Another technique Mr. Jones could use is arranging his outputs in a way that matches his inputs this time. He could seek out a raise or bonuses, or even a paid vacation to ease his stress. A third technique that Mr. Jones could use is convincing the comparison others to adjust his/her inputs or outputs. Although this might be riskier than the first two techniques, it is still an option. Finally, if no other techniques work, Mr. Jones could “leave the field” or even quit his job and find a new job where he doesn’t experience inequity.

Mr. Jones could also adjust his comparison other through a cognitive approach. Reducing cognitive inequity can be achieved through distorting past directors’ contributions and their results. This can be achieved by mentally elevating their skills, education, personal sacrifice etc. to shift the feeling of imbalance. Another method of diminishing inequity through cognitive reasoning is for him to adjust his own personal inputs and outcomes. Lastly, he could mentally add new value into his current position, by distorting the outcomes and reasoning that his outcomes are actually higher than his inputs.  

In conclusion, the relationship between the equity theory and distributive justice can be seen through the application of one’s personal analysis of equal work distribution within a workplace that matches outcomes received. In short, the perceptions of equity and inequity is derived from social interactions and varies due to individuality. It is important to note that when inequity takes place, alternative actions will be taken in order to recreate a balance. Whether or not actions taken are justified, applying cognitive methods for reducing inequity can help in reducing negative effects and reforming a balance. Additionally, all these factors are direct key components that influence motivation which in turn, influences work performance. Therefore, fairness within workloads and outcomes pave the way for motivated employees.


References

Adams, J. S. (1965). Inequity In Social Exchange. Retrieved from http://beta.orionsshoulders.com/Resources/articles/19_22185_Adams%20J%20(1965).pdf

Bing, M. N., & Burroughs, S. M. (2001). The predictive and interactive effects of equity sensitivity in teamwork-oriented organizations. Journal of Organizational Behavior, 22(3), 271-290. doi:10.1002/job.68

Folger, R., & Cropanzano, R. (1998). Organizational justice and human resources management. Thousand Oaks, CA: Sage.

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

Liu, Z., & Brockner, J. (2015). The interactive effect of positive inequity and regulatory focus on work performance. Journal of Experimental Social Psychology, 57, 111-116. doi:10.1016/j.jesp.2014.11.009

Pennsylvania State University (2016). Work Attitudes and Motivation—PSYCH 484. Online course lesson, Penn State World Campus, The Pennsylvania State University. Retrieved September 24, 2016 from https://psu.instructure.com/courses/1803780/modules/items/21267630

Shore, T., Sy, T., & Strauss, J. (2006). Leader Responsiveness, Equity Sensitivity, and Employee Attitudes and Behavior. Journal of Business and Psychology, 21(2), 227-241. Retrieved from http://www.jstor.org.ezaccess.libraries.psu.edu/stable/25092966

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