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  • Spring 2015 - Equity Theory
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Theory Introduction 

 

Equity theory was developed in the early 1960s by J. Stacy Adams (1965) to focus on social justice or the fairness of social exchanges (what we get and receive from relationships). The general 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 others. Beliefs about fairness then affect motivation, attitudes, and behaviors. Equity theory emphasizes the effects of thoughts, perceptions, and judgments in motivation. However, unlike expectancy theory, equity theory is drawn from the principle of social comparison. Adams (1965) posited that motivation has a social as opposed to biological origin.(PSU WC 2015)

 

Two terms used in equity theory are inputs and outcomes. Inputs are anything of value that a person believes that he or she brings to the job, such as experience, education, skills, intelligence, and motivation. Outcomes are the benefits that an employee feels that he or she is receiving from the job. These may include pay, job security, good supervisor, competent co-workers, opportunities for advancement, or feelings of accomplishment(PSU WC 2015).

 

INPUTOUTCOMEEQUITY
Skills, efforts, hard work, loyalty, determination, dedication, enthusiasm,
trust in superiors and organization, cooperation with colleagues,
support to subordinates, tolerance, time, personal sacrifice, commitment,+
flexibility, experience, etc.
Salary, allowances, perquisites, benefits, recognition,
appreciation, responsibility (additional), promotion, training,
cooperation from organization and colleagues,
sense of achievement, growth and development,
additional opportunities within organization, etc.
The feeling that the points under INPUT and OUTCOMES
are balanced and the proportion is equivalent to that of others'
(colleagues and peers) INPUT:OUTCOME ratios.
Read more at Buzzle: http://www.buzzle.com/articles/equity-theory.html

 

Perceived (In)equity Origins

According to equity theory, perceived (in)equity comes from social comparisons. Specifically, we form a ratio of our inputs to outcomes and compare it with others' input/outcome ratios. That is, we compare our ratio of what we bring to the job and what we get out of it with what others bring to the job and get out of it. The person or standard that we compare our ratio to is referred to as the "comparison other." People can tolerate seeing others earn more money and receive greater benefits than they do if they believe that others also contribute more inputs. Equity theory states 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 different, a state of inequity exists, and employees will be motivated to bring it back into balance(PSU WC 2015).

 

                                                                                                                                     

                                                                                                                     

 

 

 

Another example of inequity in the workplace can be attributed to employee's actions. Claude Fischer of the Boston Review suggests because men are more likely to put in more time at work, this has lead to pay (in)equality over the years because men have gained the necessary experience to excel.  Women usually are responsible for what is considered "the second shift" which means taking care of the home and children.  This does not allow women in these situations to work, or over work, in an effort to catch up to men.  In many cases women dismiss themselves from the workplace to take care of the home which has contributed to the gender pay inequality.

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 are fair. Another important observation by Sweeney and McFarlin (1997) is that procedural justice was more important for women, but distributive justice was more important for men.

  

 

 Case Study

  Marla is a 29 year old Lawyer who has been working for a small law firm in New York for 5 years. Marla  has been expecting a bonus because her work ethic is consistent and she is one of the best lawyers the firm has. Tim (comparison other) is also 29 years old and is a  newer member to the firm. Tim has been working for a year and a half and is a very motivational person who is consistent with his work but doesn't win many cases. One afternoon Marla overheard Tim having a conversation on the phone. According to Tim he has just received a nice bonus and would be taking his wife on a late honeymoon to Ireland. Marla was very confused because she still has not received her bonus and does equal amounts of work compared to Tim, wins most of her cases and has been with the firm much longer. She is very angry and feels she should have gotten the bonus first, she also feels this is very unfair and that she is being taken for granted. Due to this situation Marla Lowers her input by  slacking off at work as a form of retaliation and getting her frustration noticed. Marla's high input (consistent work/ very good lawyer) is not producing  the outcome (receiving a bonus) she would like which is now influencing a negative attitude towards her work and a reduction in productivity. This hypothetical case is describing underpayment inequity, How would you react in a similar situation?

Below are equations explaining the equity feeling based on social comparison.                     

 

    

 

 

  Next we explore the response to the equity feeling 

 

 

 Consequences related to feelings of inequity

      

 

 

 

 

 

    

Behavioral Ways to Reduce Inequity

  1. Employees can change their inputs to a level that matches their outcomes. In the case of underpayment inequity, this would involve lowering inputs by arriving late, leaving early, slacking off, or reducing effort to produce less work or lower-quality work. People will generally change inputs that are easy to change or not costly to change. On the other hand, equity theory predicts that if employees believe that they are getting more outcomes from the job than co-workers for the same level of inputs, they may be motivated to make this situation fairer by increasing inputs. This may involve working longer hours, making a greater contribution to the company, or exerting more effort(PSU WC 2015).
  2. Employees can also attempt to change their outcomes to a level that matches their inputs. Those that feel underpaid can seek additional rewards by asking for a raise or by filing a formal grievance. Union wage negotiations are a way of attempting to change the outcomes of many workers all at once. In the case of extreme underpayment inequity, employees may collectively decide to strike. Employees may even engage in stealing from the company (e.g., take home tools or office supplies) as a way of attempting to "even the score." Students in some of my classes who worked in restaurants admitted that they ate unauthorized meals because they felt inequitably paid and ill-treated on their jobs. While this is not recommended behavior, equity theory does offer a possible explanation for the rising incidence of employee theft in the workplace employees may be trying to raise outcomes as a way to restore equity. We will return to this issue later in the lesson(PSU WC 2015).

    In the case of overpayment inequity, employees may seek to lower outcomes by working through a paid vacation, not taking advantage of fringe benefits that the company offers, or giving money to charity. An article from the The Wall Street Journal (Craig, 2002) provides an example of an employee experiencing overpayment and his reactions to the positive inequity. Michael Corasaniti feels guilty because he landed a plum job running a Wall Street firm's research department, despite his lack of management experience and relative youthfulness (low inputs)(PSU WC 2015).

  3. Another behavioral option for dealing with inequity is to persuade the comparison other to change his or her inputs. Work groups often develop norms about what is fair work for a day's pay. When workers fall short of those expectations, members of the group may exert peer pressure to cause others to work faster or increase quality. However, it works in the opposite direction as well. When workers exceed the group norms, members of the group may exert pressure to convince another person to work slower because having a "norm buster" in the group makes everyone else look bad. Although it may be quite risky, individuals may also try to change the outcomes of others by having co-workers' pay cut or complaining to the boss about others' raises(PSU WC 2015).
  4. A final behavioral option is withdrawal or "leaving the field" in the terminology of Adams (1965). Withdrawal can be permanent in the case of quitting for a more equitable job (turnover) or temporary in the case of absenteeism, tardiness, long breaks, or minimal participation. Turnover is usually not engaged in until other ways of resolving the inequity have been attempted(PSU WC 2015).

 Cognitive Ways to Reduce Inequity

  1. One cognitive option is to distort the view of one's own inputs and/or outcomes to restore equity. For example, an employee may cognitively adjust their inputs to better deal with perceived underpayment inequity by thinking, "I don't really work that hard. I actually spend a good deal of time socializing." In addition, individuals may cognitively re-evaluate their outcomes and decide that they have more value than first thought (e.g., My pay may not be high, but I have more prestige in this job than I may have in another). In the case of overpayment inequity, employees may convince themselves that they really are better and deserve higher pay (e.g., I do, in fact, have a great deal of responsibility on this job). Because it is often difficult to compare outcomes across jobs, distortion of inputs (ex. effort, time, experience) is more common than distortion of outcomes (ex. salary, perks)(PSU WC 2015).
  2. Individuals can also distort the comparison others' inputs or outcomes in order to balance the two ratios (e.g., "She does have to put up with a lot from her boss;" "She really is more qualified than me)."

    Compared to behavioral strategies, cognitive adjustments require less effort on the part of the employee and are less risky. While it may seem like employees are merely "tricking" themselves, these options can be reasonably successful in reducing psychological tension in the short term(PSU WC 2015).

  3. A final cognitive option for reducing inequity involves changing the comparison other. Even within the same profession, multiple comparisons are possible. If I compare my salary to organizational behavior professors who teach similar course content to I/O psychology, I would tend to feel underpayment inequity because business schools pay much higher than psychology departments. However, if I compare my salary to other psychologists in my department, I might tend toward overpayment inequity because those in I/O generally earn more than those in other areas of psychology. Of course, if unemployed individuals were my comparative standard, I may tend to see the outcomes I receive in an even more positive light. As we discussed earlier, the choice of a comparative standard is critical in determining equity or inequity. Generally, the longer individuals have used a comparison other, the more resistance there will be to changing(PSU WC 2015).


 

 

Three Primary Equity Theory Assumptions Applied to Most Businesses

  1. Employees expect a fair return for what they contribute to their jobs, a concept referred to as the "equity norm."
  2. Employees determine what their equitable return should be after comparing their inputs and outcomes with those of their coworkers, a concept referred to as "social comparison."
  3. Employees who perceive themselves as being in an inequitable situation will seek to reduce the inequity either by distorting inputs and/or outcomes in their own minds, by directly altering inputs and/or outcomes, or by leaving the organization.

Implications for Managers

Equity theory has several implications for business managers:

  • People measure the totals of their inputs and outcomes. This means a working mother may accept lower monetary compensation in return for more flexible working hours.
  • Different employees ascribe personal values to inputs and outcomes. Thus, two employees of equal experience and qualification performing the same work for the same pay may have quite different perceptions of the fairness of the deal.
  • Employees are able to adjust for purchasing power and local market conditions. Thus a teacher from Alberta may accept lower compensation than his colleague in Toronto if his cost of living is different, while a teacher in a remote African village may accept a totally different pay structure.
  • Although it may be acceptable for more senior staff to receive higher compensation, there are limits to the balance of the scales of equity and employees can find excessive executive pay demotivating.
  • Staff perceptions of inputs and outcomes of themselves and others may be incorrect, and perceptions need to be managed effectively.

 

 

Application of Equity Theory

When a manager is striving to achieve employee satisfaction, motivation levels, etc. then he should consider Adam's Equity Theory. Therefore, he should consider the balance and imbalance that is seen in the inputs and outputs of the employee. When we talk about equity theory, we use the terms input and output. An input is the contribution made on the part of the employee. This input helps determine his/her reward or pay. Outputs are the tangible and intangible rewards or pay given to an individual based on his/her inputs. (Baxamusa 2012)

Some of the inputs made by an individual towards his/her organization include:

  • Ability to do his/her job
  • Adaptability around the company environment
  • Flexibility
  • Tolerance
  • Determination
  • Enthusiasm to complete a task or job
  • Commitment towards his/her work and organization
  • Hard work
  • Loyalty
  • Time given to the company
  • Efforts take to complete tasks as required
  • Personal sacrifice
  • Trusting superiors when it comes to delegation and management
  • Support given and taken from colleagues

 

 These outputs include:
  • Salary received in accordance to company policy
  • experience and work done
  • Job security
  • Employee benefits
  •  Recognition for work done
  • Responsibility entrusted upon an individual
  • Praise received
  • Thanks
  • Increase in reputation

 

   

Conclusions

 

 In Summary, an employees output eventually lends itself to the rewards received.  A college educated executive can determine their level of pay based on their inputs to the company.  In turn the company determines their output for the executive.  Executives receiving higher pay and bonuses are generally as a result of hard work and longer hours lending itself to the pay gap between employees.  Some might argue higher level jobs deserve higher compensation because of the longer hours and harder work (Robert Miller n.d.)  Rewards influence behaviors on both sides of the equation and can determine attitudes and motivation within the group.

 

 


References

 Adams equity theory. (n.d.). Retrieved February 15, 2015, from https://www.youtube.com/watch?v=63OoI6afhMo

Baxamusa,Batul (2012) Equity Theory of Motivation, Buzzle., retrieved from; http://www.buzzle.com/articles/equity-theory-of-motivation.html

Boundless. “Equity Theory.” Boundless Business. Boundless, 02 Jul. 2014. Retrieved 10 Feb. 2015 from https://www.boundless.com/business/textbooks/boundless-business-textbook/motivation-theories-and-applications-11/modern-views-on-motivation-76/equity-theory-360-3209/

 Employee Motivation: Equity Theory. (n.d) Retrieved: February 11, 2015, from https://www.youtube.com/watch?v=2p_4C0Mzne4

Fischer, C  "How Changes in the Workplace have Reinforced Pay Inequality" Boston Review June 11, 2014  WEB http://bostonreview.net/blog/claude-fischer-pay-gap-overwork-cha-wedeen

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

Griffin, Moorehead (1989) Organizational Behavior: Managing People and Organizations, 10th, Harcourt Brace, Australia:  retrieved from: http://www.bing.com/images/search?q=equity+theory&FORM=HDRSC2#view=detail&id=029CA38A2E830B030375D463286C5AF99B677286&selectedIndex=43

Miller, R "On Executive Compensation" (nd.) Reference for Business WEB http://www.referenceforbusiness.com/management/Em-Exp/Executive-Compensation.html

Pennsylvania State University World Campus (2015)Lesson 05: Equity Theory: Is what I get for my work fair compared to others? retrieved from: https://courses.worldcampus.psu.edu/sp15/psych484/001/content/lesson05/lesson05_01.html

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

 

 

 

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