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Equity Theory

         Equity Theory posits that an individual tends to apply a particular equation when determining if he or she is being treated fairly. This equation is a “ratio of our inputs to outcomes and compares it with others’ input/output ratios” (The Pennsylvania State University [PSU], 2014, p. 4). An individual’s motivation will fluctuate depending on his or her perception of fairness as it relates to others (PSU, 2014).

 equity image

(Image retrieved from: Hack, 2011)

       For example, within the workplace, an employee might measure the amount of work he or she has produced (input) against the compensation he or she will receive (outcome), and compare this ratio to a co-worker’s work to compensation ratio.  It is important to understand that the emphasis is not on the employee’s input/outcome ratio as much as it is about the comparison to others’ ratios that determines the perception of inequity. If an employee perceives an inequity then he or she will be unhappy, less motivated, and will strive to correct it (PSU, 2014).


Case study

     Alex, a mid-level manager, has been working for NewCo for over five years. The company is thriving and she is content. This contentment, however, changes upon the arrival of a new co-worker, Brian, who has been hired as another manager to help with the company’s recent expansion. They have the same responsibilities, but each oversees their own team of subordinates. Brian has been given the same privileges that Alex enjoys as a manager, such as the same job title, office space, and number of vacation days.

     Initially, Alex is relieved to have Brian on board so that he can help lighten her workload. Over the past year, she has regularly worked overtime. She comes in early and never leaves before 7pm. As the months pass, Alex believes that Brian is not producing work that she feels meets the company standards. She starts taking note of his work hours and realizes that he never comes in early and always leaves the office at 5pm. Alex feels that Brian is not dedicated to the organization or his work. To make matters worse, a friend in the Accounts Department reveals that Brian is being paid more than she. Alex is aware that Brian has similar college degrees and nearly the identical work history, so she is bewildered. She believes that this is not an equitable situation; however, Alex is sure that when she approaches her boss that the matter will be resolved. In other words, she will receive a pay raise and Brian will be asked to produce a higher standard of work

     Alex is dismayed when her boss denies that Brian is being paid more. He also claims that Brian’s work is sufficient. She is unsure what to do next. For some time, she tells herself that compared to most other women, she knows, she is highly paid. She also tells herself that many people do not even have a job, so really, she is very lucky. Some months go by and Alex can no longer tolerate the situation. She decides that if the boss is satisfied with the level of work that Brian produces, she will produce the same. She no longer comes in early and she does not stay late.  Of course, this did not resolve the issue regarding the pay differential. She begins thinking of leaving the organization.

     Although Brian has worked within this industry for many years, he feels that NewCo is very fast paced. He sees that most people in the office work very late, but he is not willing to conform to that standard. He believes that work should not consume one’s entire existence. He simply does not want to sacrifice time with his wife and two young children. He is most uncomfortable with the fact that he is being paid substantially higher salary than his co-worker, Alex. He believes that this is not equitable but does not want to approach his new boss about it. He decides that he will donate his year-end bonus to the local youth organization. This makes him feel a little better.


Inputs and Outcomes

     There are two terms that are closely associated with equity theory, inputs and outcomes.  Inputs can be defined as the contributions a person puts forth in order to get the desired end result.  Outputs or outcomes are the results, whether positive or negative, that comes from the inputs.  Examples of inputs in employment range from hours worked, effort put forth in a job, loyalty to a company, to willingness to work with coworkers, etc.  Examples of outcomes range from salary, vacation, promotions, etc. (PSU, 2014)

     In the case study involving Alex and Brian, there are many examples of inputs and outcomes to be found.  Alex has worked overtime for over a year, she works hard, and provides years of experience along with her degree.  Brian also brings years of experience along with his degree to the job.  Brian puts forth the effort to help to lighten the workload for Alex, although he is not willing to input overtime for the company.  The outcomes in the case study are the salaries that both Alex and Brian receive, as well as the production of work.  In this case study, there is an inequity in inputs and outcomes causing a discontent environment for Alex.  

     Below is a chart that helps to visualize examples of inputs and outcomes in relation to how they interact to achieve the goal.  


                                                                                             (Image retrieved from: McNamara, 2005)


Comparison Others

     In addition to the inputs and outcomes, what makes up equity theory is the comparison other.  The comparison other is “the person or standard that an individual compares their input and outcome ratio to” (PSU, 2014, p. 5). Equity theory is a measure of inputs and outcomes and comparison other is what those ratios are compared against.  “Equity theory states that employees assess their inputs and outcomes and judge fairness by comparing them to the inputs and outcomes of a comparison other” (Adams, 1963).  In the case study, Alex is using Brian as her comparison other.  She is comparing her inputs and outcomes to those of Brian.  Alex believes that she inputs more effort to the job than Brian, yet her pay is less than Brian’s. Therefore, this has caused an inequity in Alex’s comparison other.  Alex also uses other women as a comparison other.  Alex compares her income to other women, knowing that she is paid well in the comparison.  Additionally, she compares her situation to that of an unemployed individual, and becomes grateful for her job.


Psychological Consequences

     Inequity has a huge impact on a person’s psychological state. If underpayment is occurring, it causes a person to become angry and leads to decreased motivation in their work performance; whereas, if overpayment occurs, it leads a person to feeling guilty (PSU, 2014).  If there is a higher amount of inequity, there is greater motivation to reduce it. There is also the idea of equity sensitivity, which means that some individuals may tolerate unfairness better than others (PSU, 2014).  

     In the case of Alex and Brian, they both seem to experience all of these psychological consequences. Alex tries to rationalize the unfair situation by comparing herself to other women and thinking that she is lucky to have her job, which shows a bit of equity sensitivity but over time she feels the anger that comes with the underpayment that is occurring and it starts to negatively affect her performance. She even becomes so fed up that she thinks of leaving the organization. Brian, on the other hand, feels the guilt that comes with overpayment. In this case, inequity has substantial psychological consequences from both ends of the spectrum.


Behavioral Ways to Reduce Inequity

      In order to reduce inequity, employees will try to find a balance between their inputs and outcomes. If there is a perceived lack of recognition for their work, or underpayment inequity, they may reduce their inputs to match the benefits (outcomes) they are receiving (PSU, 2014). Likewise, when employees feel they are receiving too much for their inputs, or overpayment inequity, they may try to make up the difference by ridding themselves of the extra benefits they have received (PSU, 2014). Employees might also try to convince their co-workers to change their inputs to match their own, as a way to alleviate the guilt or anger they are feeling from the overpayment/underpayment. Lastly, an individual may choose to withdraw from the situation completely, which in the workplace context would mean quitting the job, which is something that Alex is considering (PSU, 2014).

 

In this particular case, Brian tries to somehow rectify the situation, to alleviate the guilt that he feels due to being paid more than Alex, by donating his extra pay to charity. This is a behavior that is used as a way to reduce the inequity that is occurring, as he feels if the extra money goes to a good cause, the inequity is reduced. In Alex’s situation, she tries to reduce the underpayment by reducing her input by no longer working overtime or talking to her boss. This is her way of trying to persuade the comparison other to change and she thinks of leaving the organization, which is also another way people deal with underpayment. This case study displays all behaviors in regards to inequity.

 


 

Cognitive Ways to Reduce Inequity

     When faced with the issue of inequity within the workplace, there are several steps you can take to rectifying the inequity, easing the tension, and striking a balance. In addition to the previously mentioned behavioral methods of reducing inequity, there are some cognitive ways of combating the inequity as well (PSU, 2014). The first way to cognitively reduce inequity is by altering one’s view of one’s own inputs and outcomes (PSU, 2014). One might also choose to alter one’s view on the comparison other’s inputs and outcomes (PSU, 2014). And finally, one could completely change whom one is comparing oneself to (PSU, 2014). All of these approaches are purposeful cognitive actions to reevaluate the situation and reestablish equity.

     In the case study, Alex first tries to behaviorally reduce the inequity, but she is unsuccessful in her first attempt. Due to this, Alex starts using cognitive approaches to reducing inequity, such as changing the comparison other from Brian to women in general and unemployed individuals. She rationalizes that she makes more money than most women, thus changing the ratio of inequality. There is an even more dramatic change in equity when she compares herself to people who are unemployed. With her new rationale, she is experiencing overpayment inequity, also known as positive inequity (PSU, 2014). She now considers herself lucky for the job she has.


Distributive and Procedural Justice

     Distributive and procedural justice, are two fairly new concepts have come into play when discussing equity theory and fairness within the workplace. Distributive justice is concerned with the outcomes and how fair or unfair they might be, ultimately, focusing on outcome satisfaction (PSU, 2014). Procedural justice, on the other hand, is focuses on the system satisfaction based on the fairness of the process (PSU, 2014). While distributive justice is the primary focus of the equity theory, procedural justice is equally as important, because both types of justices can be linked to “job performance, satisfaction, and intentions to quit” (PSU, 2014, p.12).

       When looking at the case study, it is clear to see that Alex is upset about the unfairness of the outcomes between her and Brian, thus focusing on distributive justice. However, it is her realization that the there is unfairness in the procedures, leading her to be unsatisfied with the system, that ultimately leads her to considering quitting her job. This speaks to the fact that women often find procedural justice to be the most important consideration in fairness assessment (PSU, 2014).


Organizational Solutions

     Alex makes less than Brian, and although she has altered her input to match her outcome, she is not happy with the inequity. The NewCo Company is facing an underpayment inequity situation, which occurs when an individual perceives that their input to outcome level (reward) is not fair in comparison to others (PSU, 2014). Companies should do their best to maintain equity in the workplace and it clear that organizations should avoid underpayment (PSU, 2014). As we can see in the case of Alex, she has become frustrated and is thinking of leaving her job, as she faces an underpayment situation and her supervisor is not addressing the equity issue at hand. Alex does not feel that she is being treated fairly compared to Brian and this ultimately leads to what Greenburg (1990) describes as a distributive justice situation. Distributive justice deals with fairness of the outcomes and the results of reward distribution- it deals with outcome satisfaction (PSU, 2014).  Therefore, we will now examine the ways NewCo can address the ways to address the inequity situation.

     Although it can be difficult for organizations to administer rewards that will be perceived as equitable by all employees, the NewCo could utilize some of the Behavioral and Cognitive approaches discussed above to reduce the inequity situation they face in the case of Alex. From a behavioral perspective, Alex could change her inputs to a level that matches the outcome (as she was trying to do), but the organization could reinforce the value of her contribution (input) by helping her deal with the perceived inequity by persuading her comparison of others (in particular, Brian) to change her inputs.  The supervisor could also assist Alex in changing her comparison of Brian’s inputs or outcomes in order to balance the two ratios. From a cognitive approach, since the supervisor denied that Brian makes more than Alex, it would be prudent to assist Alex in distorting the view of her own inputs and/or outcomes to restore equity. Additionally, Alex could distort the comparison of Brian’s inputs or outcomes in order to balance the ratio. As was stated, Brian brings years of experience and has a degree that supports his position. Perhaps, Brian may be spending less time at work, but the time he spends is much more productive than that of his coworkers, and someone such as Alex needs to distort her view to come to terms with the situation- to find equity.


Conclusion

     Equity theory is based on social comparisons as well as perceptions, so it is possible that Alex’s comparison to others (like Brian) is what contributed to the inequity situation the NewCo faced. Whether or not the situation was purely a result of Alex’s perception, it is important for organizations like NewCo to fully understand the importance of disturbing rewards fairly and equitably amongst employees. While companies should do their best to maintain internal equity in pay, it is also important that organizations evaluate their reward policies in order to maintain equity in the organization, so that employees are motivated and will produce at a level that meets the needs of the business.




References

Adams, J. S. (1963). “Toward an understanding of inequity.” Journal of Abnormal and Social Psychology, 67, 422–436.


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


Hack. (2011, May 1). Equity theory of work motivation. Business Bangladesh. [Web log]. Retrieved from http://businessbangladeh.blogspot.com/2011/05/equity-theory-of-work-motivation.html


McNamara, C. (2005). Field Guide to Consulting and Organizational Development. Retrieved from http://managementhelp.org/misc/orgs-open-systems.pdf


The Pennsylvania State University. (2014). Lesson 5: Equity Theory: Is what I get for my work fair compared to others? Work Attitudes and Motivation. [Online Lecture].

               Retrieved from https://courses.worldcampus.psu.edu/su14/psych484/001/content/lesson05/printlesson.html

 


 


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