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Equity Theory in Action

Introduction:


Equity theory was an idea developed in 1965 by J. Stacey Adams and it focused on the social justice or the fairness of social exchanges; what we get and receive from relationships (PSU WC, 2014, L5 p.2). This idea is that "how hard a person is willing to work is determined, in part, by thoughts about what is fair or just as compared to other." (to put it a bit more plain, is what I am contributing the same as everyone around me? Am I inputting and receiving the same outcome as everyone around me? If not, why?)

Terminology

  • Inputs - Anything of value that a person believes that he or she brings to the job (experience, education, skills, intelligence, and motivation).
  • Outcomes - The benefits that an employee feels that he or she is receiving from the job (pay, job security, good supervisor, competent co-workers, opportunities for advancement, or feelings of accomplishment).
  • Comparison other - The person or standard that we compare the ratio of inputs and outcomes to.

Side Note: Inputs, Outcomes, and the Comparison Other are whatever the employee perceives they are.

 

Equity theory addresses the following two primary questions:

1) Where does perceived equity or inequity come from?

2) What are the consequences of equity or inequity?

 

The following video goes into more depth about this terminology and gives examples of each; in addition to answering the primary questions equity theory addresses:

 

 (Alanis,2013)

 


Examples of equity and inequity:


 InputOutcome
Davis40+ hours/ week$40,000/ year

This first table does not determine equity or inequity

 

 InputOutcome
Davis40+ hours/ week$40,000/ year
Emily40+ hours/ week$40,000/ year

What determines Equity or Inequity is the COMPARISON to other ratios. (In this table, everything is fair)


 InputOutcome
Davis40+ hours/ week$40,000/ year
Emily40+ hours/ week$50,000/ year

This table displays that the ratio between Davis and Emily is different, therefore, the comparison is different which creates a problem known as: Inequity...

(In)equity


  • Underpayment inequity - Negative inequity - This type will occur when the ratio of input and outcome for an individual is less favorable than that of another.
  • Overpayment inequity - Positive inequity  - This type will occur when the ratio of input and outcome is more favorable than that of another.

Equity sensitivity tells how people may react to felt inequity. (Huseman, Hatfield, & Miles, 1987; O'Neill & Mone, 1998)

  • Benevolents - Willing to accept less rewards, okay with equity ratings being lower then others around them.
  • Entitleds - Willing to accept being over compensated and with having higher equity ratings then others around them.

 

 

 

 

The following video shows how all of this information regarding inputs, outputs, and inequity/imbalance can effect the workplace:

 

 (Alanis, 2012)

 

 

 

Now that you know the basics...


Case Study: 123 Bank Employee Comparisons

Kathryn is an employee of a well-known financial institution, 123 Bank.  She has been employed with 123 Bank for a total of 6 years. For the past six years, Kathryn has held a position as a New Accounts Representative. Her job performance is tracked and ranked by sales revenue. Just this past year Kathryn has achieved excellent performance results. She went from being at the lowest rank to ranking number five in her local area. Overall, Kathryn’s performance in the company has been less than stellar with the exception of the past year. However, her hopes to get promoted have motivated her to work harder. Kathryn has previously been turned down for a promotion, but she feels that if she is the top New Accounts Representative, then that will guarantee her awaited promotion. The top new accounts representative receives an award for their performance at the company’s end of the year celebration, along with top performing employees in other position categories. Kathryn has focused on working to achieve this reward.

 

At the end of the year celebration, several of the members of her local branch office received rewards for being the top performer in their respective positions. Kathryn was very upset that she worked so hard and still did not achieve the award for top New Accounts Representative. She began to question how the Assistant Manager, one position above her, was able to receive an award and not her. She felt that she did more work than the Assistant Manager. It was common knowledge that the Assistant Manager was paid more than she was and now she felt that the Assistant Manager was being given undeserved accolades. Kathryn doesn’t feel this is fair and immediately expresses her concerns the Branch Manager.

 

The Assistant Manager, Tia has also been with 123 Bank for 6 years. Like Kathryn, Tia started out as a New Accounts Representative. However, Tia was promoted within her first six months due to an excellent performance rating. In her six years, she has been promoted three times. In her current position of Assistant Manager of the local branch, Tia is measured by the performance of her staff instead of her individual performance. Although Tia doesn’t directly sell, she provides support and coaching to the sales team.

 

Kathryn is not getting the outcome she expected to follow her hard work. She is no longer motivated to work hard and begins applying less and less effort each day. The conversation with the Branch Manager did not help to ease her frustrations. He merely stated that the performance expectations were different for Tia’s position.

 

Applications of Equity Theory:

Equity theory suggests that how hard a person is willing to work is determined, in part, by feelings about what is fair or just as compared to others. Beliefs about fairness then affect motivation, attitudes, and behaviors (PSU WC, 2014, L.5., p. 2). This is due to the calculating of inputs and outputs that the individual deems appropriate; which generates a perceived comparison ratio. The accuracy of the compared ratios is of no consequence. Instead, it is the perception of the comparison being made which is important. In the case of Kathryn at 123 Bank, she has chosen to draw comparison of herself and the Assistant Branch Manager. Therefore, Tia is the “comparison other” in this case.

 

Kathryn perceives that her input should generate an outcome of the top New Accounts Representative for the year. When her work does not provide this outcome but the work of her co-workers results in such outcome, she develops underpayment inequity. Underpayment inequity occurs when the ratio of one's own inputs and outcomes is greater than or less favorable than the ratio of a comparison other (PSU WC, 2014, L.5., p. 4). Kathryn feels that she has done more work actual work than her Assistant Branch Manager, Tia. Equity theory suggests that people strive to achieve and maintain a state of equity or fairness in order to maintain internal, psychological balance (Adams, 1965). However, when ratios are skewed, a state of inequity exists, and employees will be motivated to bring it back into balance  (PSU WC, 2014, L.5., p. 4). Kathryn was no longer motivated to work hard because she didn’t see a payoff or reward.

 

Prior to this year, Kathryn had been an underperformer. She ranked last in her position, out of all the New Account Representatives in her local area, and she has been with the company a total of six years. If comparison between her and her peers is drawn, Kathryn has experienced an overpayment inequity for five years. Overpayment inequity occurs when the ratio of one's own inputs and outcomes is lower than or more favorable than the ratio of a comparison other (PSU WC, 2014, L.5., p. 4). Kathryn reacted to this overpayment with acceptance. She was comfortable with having a ratio higher than others. This is why when she decided to work harder; she expected to achieve more, maintaining this overpayment ratio. In actuality, her input produced an outcome that finally balanced her ratio.

 

Equity sensitivity has been studied to account for the differences in reactions to perceived inequities (Huseman, Hatfield, & Miles, 1987; O'Neill & Mone, 1998). Kathryn’s reaction is that of an entitled. Entitleds are said to be more willing in accepting over-reward inequity and are more comfortable when their equity ratio is higher than that of the comparison other. They feel that they are owed their due and that their outcomes are deserved (PSU WC, 2014, L.5., p. 6). Kathryn felt that she deserved the top New Accounts Representative award because she increased her input. While she is comfortable with overpayment, she is not comfortable with the felt inequity of underpayment. The theory provides several ways that Kathryn can reduce her feelings of inequity.

 

 

Equity Theory Examples
As the main focus of the researchers moved towards employees and their motivation factors, following the Hawthorne Study results, there were many theories put forward to understand employee motivation. The following are the five major equity theory examples that have helped in understanding motivation.
 
Maslow's Need-Hierarchy Theory: Maslow put forward five levels of needs of employees. These needs included physiological, safety, ego and self-actualizing. Maslow put forward an argument that said the lower level needs of employees need to be satisfied before the next higher level need is fulfilled to motivate them. The motivation was categorized into factors by Herzberg; motivators and hygiene. The motivators including intrinsic factors like achievement and recognition help produce job satisfaction. The hygiene or extrinsic factors like pay and job security lead to job dissatisfaction.
 
Vroom's Theory: This theory was based on the belief that employee effort leads to performance and performance leads to rewards. These rewards can be positive or negative. The positive rewards lead to a more positive employee who is highly motivated. The negative rewards lead to obviously a less motivated employee.
 
Skinner's Theory: This theory states that the positive outcomes will be repeated and behavior that lead to negative outcome won't be repeated. Thus, managers should try to reinforce the employee behavior, such that it leads to positive outcomes. Negative reinforcement by managers will lead to negative outcomes.
 
Adam's Equity Theory Model: This theory shows that employees strive to achieve equity between themselves and their coworkers. This equity can be achieved when the ratio of employee outcomes over inputs is equal to other employee outcomes over inputs.

(Baxamusa, 2012)

Behavioral Ways to Reduce Inequity

 

  1. Kathryn can change her inputs to a level that matches her outcomes. Kathryn may start arriving late or leaving early, slacking off or possibly reducing her production level and/or quality of work.

  2. Kathryn may attempt to change her outcomes to a level that matches her inputs. Since she did not receive the promotion she thought she deserved, she may start to steal from the company to “even the score," by taking longer breaks or lunches.

  3. Another way that Kathryn may change the input is by persuading others to change her inputs.  She may submit a formal complaint or cause an uproar among the office staff of inequality and organize a strike.

  4. Kathryn may not feel comfortable with the other behavioral options in reducing inequity, so she may just withdrawal or "leaving the field" in the terminology of Adams (1965).  Kathryn may just quit for a more equitable job.

It is important to mention here that many behavioral options for reducing inequity involve risks. In Kathryn’s scenario, pursuing any of the behavioral options above without success; may result in an elimination of any future opportunities for a promotion.

This may make Kathryn feel worse and she may decide to restore equity through a cognitive process instead.  A cognitive approach may allow her to alter her thought process while also allowing for minimal risks.


Cognitive Ways to Reduce Inequity

 

  1. Kathryn may distort her own inputs or outcomes to restore equity. Kathryn may do this by telling herself that she really does not work as hard as the others; due to her focusing on relationships and she may have done more socializing than she first perceived.

  2. Kathryn may distort the comparison others' inputs or outcomes in order to restore balance the two ratios.  Kathryn may do this by telling herself that her assistant manager does make more money than me, but she has to work a lot more hours than I do.
     
  3.  A final option for Kathryn would involve changing the comparison other. Kathryn may do this by comparing her salary and situation to someone who is in a similar occupation as her own.

 

Cognitive adjustments require less effort than the behavioral strategies, but for Kathryn these are less risky.  Kathryn may feel as though she is tricking herself, but this option is levelheadedly successful in reducing psychological tension for the short term.

 

 

Procedural and distributive justice

Distributive justice - deals with fairness of the outcomes and the results of reward distribution.

Procedural justice - deals with the fairness of the process and the means used to allocate rewards (Folger & Cropanzano, 1998).

Although distributive justice is more of what was discussed with equity theory, it did not nor should it discount procedural justice.  For an organization, procedural justice is something that is very important, it allow an organization not just to deal with the outcome satisfaction, but also the organization system in place.  An organization can make sure that the procedures of distributed outcome is fair.

Note: In addition, Sweeney and McFarlin (1997) found that procedural justice was more important for women, but distributive justice was more important for men. 

Conclusion:

Equity theory makes intuitive sense in that people do consider inputs and outcomes relative to others. Unlike other approaches, equity theory emphasizes the social component of motivation in addition to highlighting how other's behavior around us may affect how we behave and think. In terms of application, Adams (1965) has helped to direct attention to the importance of compensating workers fairly and to the possible negative consequences of not doing so. One of the difficulties with this theory is it doesn't specify which way will be chosen to reduce equity(whether it be changing outcomes, inputs, or the comparison other); so with that being said, equity theory focuses more on explaining past behavior than predicting future behavior (PSU WC, 2014, L5 p.12).

 

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.

Alanis, M. (Videographer) (2012). Episode 46: Equity and its relevance to the workplace [Web]. Retrieved from http://www.youtube.com/watch?v=yDCW9vVPCmo

Alanis, M. (Videographer) (2013). Episode 138:  Introduction to equity theory [Web]. Retrieved from http://www.youtube.com/atch?v=_kMBILOXsZ8

Baxamusa, B. N. (2012, March 12). Equity theory of motivation. Retrieved February 13, 2014, from http://www.buzzle.com/articles/equity-theory-of-motivation.html

Cohen-Charash, Y., & Spector, P. E. (2001). The role of justice in organizations: A metaanalysis. Organizational Behavior and Human Decision Processes, 86, 278-321.

Craig, S. (2002, September 9). For analyst, a rising career-and guilt. The Wall Street Journal.

Dunham, K. J., & Maher, K. (2002, October 15). Companies cut costs where it hurts: Employee pay. The Wall Street Journal, B1, B8.

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

Greenberg, J. (1989). Cognitive re-evaluation of outcomes in response to underpayment inequity. Academy of Management Journal, 32, 174-184.

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

Harder, J. W. (1992). Play for pay: Effects of inequity in a pay-for-performance context. Administrative Science Quarterly, 37, 321-335.

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.

Lawler, E. E., III. (1967). Secrecy about management compensation: Are there hidden costs? Organizational Behavior and Human Performance, 2, 182-189.

Lawler, E. E., Koplin, C. A., Young, T. F., & Fadem, J. A. (1968). Inequity reduction over time in an overpayment situation. Organizational Behavior and Human Performance, 3, 253-268.

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.

Martin, J. E., & Peterson, M. M. (1987). Two-tier wage structures: Implications for equity theory. Academy of Management Journal, 30, 297-315.

Mowday, R. T. (1991). Equity theory predictions of behavior in organizations. In R. M. Steers and L. W. Porter (Eds.), Motivation and work behavior (5th edition, pp. 111-131). New York: McGraw-Hill.

O'Neill, B. S., & Mone, M. A. (1998). Investigating equity sensitivity as a moderator of relations between self-efficacy and work place attitudes. Journal of Applied Psychology, 83(5), 805-816.

Pinder, C. C. (2008). Work motivation in organizational behavior. New York: Psychology Press.

Prichard, R. D. (1969). Equity theory as a predictor of productivity and work quality. Psychological Bulletin, 70, 596-610.

Sweeney, P. D., & McFarlin, D. B. (1997). Process and outcome: Gender differences in the assessment of justice. Journal of Organizational Behavior, 18, 83-98.

Pennsylvania State University World Campus (2014). Psych 484 Lesson 5: Equity Theory: Is what I get for my work fair compared to others? Retrieved from https://courses.worldcampus.psu.edu/sp14/psych484/001/content/lesson05/lesson05_01.html 


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