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Equity Theory by John Stacey Adams

Equity Theory attempts to explain relational satisfaction in terms of perceptions of fair/unfair distributions of resources within interpersonal relationships. Equity theory is considered as one of the justice theories, It was first developed in 1962 by John Stacey Adams, a workplace and behavioral psychologist, who asserted that employees seek to maintain equity between the inputs that they bring to a job and the outcomes that they receive from it against the perceived inputs and outcomes of others (Adams, 1965). The belief is that people value fair treatment which causes them to be motivated to keep the fairness maintained within the relationships of their co-workers and the organization. The structure of equity in the workplace is based on the ratio of inputs to outcomes. Inputs are the contributions made by the employee for the organization; this includes the work done by the employees and the behavior brought by the employee as well as their skills and other useful experiences the employee may contribute for the good of the company.[ad#ad-4]

Background

Equity theory proposes that individuals who perceive themselves as either under-rewarded or over-rewarded will experience distress, and that this distress leads to efforts to restore equity within the relationship. It focuses on determining whether the distribution of resources is fair to both relational partners. Equity is measured by comparing the ratios of contributions and benefits of each person within the relationship. Partners do not have to receive equal benefits (such as receiving the same amount of love, care, and financial security) or make equal contributions (such as investing the same amount of effort, time, and financial resources), as long as the ratio between these benefits and contributions is similar. Much like other prevalent theories of motivation, such as Maslow’s hierarchy of needs, Equity Theory acknowledges that subtle and variable individual factors affect each person’s assessment and perception of their relationship with their relational partners (Guerrero et al., 2007). According to Adams (1965), anger is induced by underpayment inequity and guilt is induced with overpayment equity (Spector 2008). Payment whether hourly wage or salary, is the main concern and therefore the cause of equity or inequity in most cases. In any position, an employee wants to feel that their contributions and work performance are being rewarded with their pay. If an employee feels underpaid then it will result in the employee feeling hostile towards the organization and perhaps their co-workers, which may result the employee not performing well at work anymore. It is the subtle variables that also play an important role for the feeling of equity. Just the idea of recognition for the job performance and the mere act of thanking the employee will cause a feeling of satisfaction and therefore help the employee feel worthwhile and have more outcomes.

Definition of equity

An individual will consider that he is treated fairly if he perceives the ratio of his inputs to his outcomes to be equivalent to those around him. Thus, all else being equal, it would be acceptable for a more senior colleague to receive higher compensation, since the value of his experience (an input) is higher. The way people base their experience with satisfaction for their job is to make comparisons with themselves to the people they work with. If an employee notices that another person is getting more recognition and rewards for their contributions, even when both have done the same amount and quality of work, it would persuade the employee to be dissatisfied. This dissatisfaction would result in the employee feeling underappreciated and perhaps worthless. This is in direct contrast with the idea of equity theory, the idea is to have the rewards (outcomes) be directly related with the quality and quantity of the employees contributions (inputs). If both employees were perhaps rewarded the same, it would help the workforce realize that the organization is fair, observant, and appreciative.
This can be illustrated by the following equation:

(Individual’s outcomes)/(Individual’s own inputs)=(Relational partner’s outcomes)/(Relational partner’s inputs)

Inputs and outcomes
Inputs:

  • Time
  • Effort
  • Loyalty
  • Hard Work
  • Commitment
  • Ability
  • Adaptability
  • Flexibility
  • Tolerance
  • Determination
  • Enthusiasm
  • Personal sacrifice
  • Trust in superiors
  • Support from co-workers and colleagues
  • Skill

Outcomes:
Outputs are defined as the positive and negative consequences that an individual perceives a participant has incurred as a consequence of his/her relationship with another. When the ratio of inputs to outcomes is close, than the employee should have much satisfaction with their job. Outputs can be both tangible and intangible (Walster, Traupmann & Walster, 1978). Typical outcomes include any of the following:

  • Job Security
  • Esteem
  • Salary
  • Employee benefit
  • Expenses
  • Recognition
  • Reputation
  • Responsibility
  • Sense of achievement
  • Praise
  • Thanks
  • Stimuli

Propositions

Equity Theory consists of four propositions:

  1. Individuals seek to maximize their outcomes (where outcomes are defined as rewards minus costs).
  2. Groups can maximize collective rewards by developing accepted systems for equitably apportioning rewards and costs among members. Systems of equity will evolve within groups, and members will attempt to induce other members to accept and adhere to these systems. The only way groups can induce members to equitably behave is by making it more profitable to behave equitably than inequitably. Thus, groups will generally reward members who treat others equitably and generally punish (increase the cost for) members who treat others inequitably.
  3. When individuals find themselves participating in inequitable relationships, they become distressed. The more inequitable the relationship, the more distress individuals feel. According to equity theory, both the person who gets “too much” and the person who gets “too little” feel distressed. The person who gets too much may feel guilt or shame. The person who gets too little may feel angry or humiliated.
  4. Individuals who perceive that they are in an inequitable relationship attempt to eliminate their distress by restoring equity. The greater the inequity, the more distress people feel and the more they try to restore equity. (Walster, Traupmann and Walster, 1978)

Equity Theory in business

Equity Theory has been widely applied to business settings by Industrial Psychologists to describe the relationship between an employee’s motivation and his or her perception of equitable or inequitable treatment. In a business setting, the relevant dyadic relationship is that between employee and employer. As in marriage and other contractual dyadic relationships, Equity Theory assumes that employees seek to maintain an equitable ratio between the inputs they bring to the relationship and the outcomes they receive from it (Adams, 1965). Equity Theory in business, however, introduces the concept of social comparison, whereby employees evaluate their own input/output ratios based on their comparison with the input/outcome ratios of other employees (Carrell and Dittrich, 1978). Inputs in this context include the employee’s time, expertise, qualifications, experience, intangible personal qualities such as drive and ambition, and interpersonal skills. Outcomes include monetary compensation, perquisites (“perks”), benefits, and flexible work arrangements. Employees who perceive inequity will seek to reduce it, either by distorting inputs and/or outcomes in their own minds (“cognitive distortion”), directly altering inputs and/or outcomes, or leaving the organization (Carrell and Dittrich, 1978). Thus, the theory has wide-reaching implications for employee morale, efficiency, productivity, and turnover.

Assumptions of Equity Theory applied to business

The three primary assumptions applied to most business applications of Equity Theory can be summarized as follows:

  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. This concept is 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 (“cognitive distortion”), by directly altering inputs and/or outputs, or by leaving the organization. (Carrell and Dittrich, 1978)

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.
  • An employee who believes he is over-compensated may increase his effort. However he may also adjust the values that he ascribes to his own personal inputs. It may be that he or she internalizes a sense of superiority and actually decrease his efforts.

Written by: Shawn Thomas

We also suggest this relevant article if you have time: Frederick Herzberg – Motivation-Hygiene Theory or the Two factor theory

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