The Equity Theory– Principle of Balance, Fairness, Justice… In The Workplace: Workers Perceptions About Fairness Does Matter…

Do perceptions matter in the workplace? The Equity Theory states that it does! Left unaddressed, employees’ lingering concerns about fairness, justice… can have a significant effect on employees’ morale, organization productivity…

According to Robert Tanner; gone are the days when managers just command, control employees… Organizations now operate under a pace of change that is unforgiving and unrelenting. Customers through social media now have much more power to affect a business’s bottom line and its market reputation. Employees bring different expectations that come from different life experiences. Given all of this, it’s not surprising the lack of employee motivation is a frequent area of concern…

The essence of the Equity Theory, invented by John Stacey Adams in 1963, is the principle of fairness and balance; where employee’s degree of motivation is correlated to their perception of equity, fairness, justice… practiced by their management in the work place… When workers evaluate fairness they compare their job input to the organization (their contribution) and also their outcome (their rewards) from the organization (a fairness test)… they also compare these– job input and outcome– with the comparable co-workers’ job input and outcome (the balance test)…

equity thQWPQNR72

Unlike basic motivation incentives that consists of offering rewards, such as; pay, benefits… the Equity Theory looks beyond the worker and includes other factors in the workplace that affects motivation, and it does this through comparisons. The Equity Theory states that when a worker compares themselves to their coworkers and finds that the results to be fair, they are more motivated… On other hand, if the comparison with coworkers seems unequal or unfair, they are less motivated…

The essence of the Equity Theory is motivation through perceived fairness… However, there is much criticism of the Equity Theory, and they are directed at both; the assumptions and practical application; for example, scholars question the simplicity of model, arguing that– demographic, psychological variables affect people’s perceptions of fairness and their interactions with other workers… Furthermore, much of the research supporting the basic propositions of the theory has been conducted in laboratory settings, thus have questionable applicability to real-world situations…

How the Equity Theory Works: The Equity Theory can be described using the following equation, which compares an employee’s inputs (i.e., what an employee feels they contribute to an organization) with an employees outcomes (i.e., what an employee feels they get from the organization in return).

equity thU8M2PC4V

In the equation, ‘inputs’ typically include things like: time, hard work, effort, enthusiasm, leadership, initiative, trustworthiness, knowledge, talent, skill, aptitude, disposition/attitude, willingness to change, like-ability, kindness, good looks, status… Outcomes include things that employees look to get out of organizations, for example:  recognition, job security, pay and fringe benefits, responsibility, promotion, trusting relationships, perceived upward mobility, and reputation… When one employee compares their ratio of ‘input and output’ to the ratios of ‘input and output’ of other employees, they are in fact supporting the Equity Theory.

The comparison of these two ratios acts as a reference point for a employee’s motivation… Hence, the Equity Theory works with two factors: First, it involves an employee assessing their ratio of ‘input and output’… Second, it involves the same employee assessing their coworkers ratios of ‘input and output’…

The Equity Theory can be important tool for assessing employee satisfaction… that is, the employee’s relationship between motivation and productivity… and how to increase employee motivation… For example, consider a case where a hard-working employee believes that they are being paid fair salary, but then become aware that they are in fact one of lowest-paid employees on staff– as you might imagine, this knowledge will most likely lead them to be less motivated…

In the article Equity Theory of Motivation: Reward & Effort by Sherri Hartzell writes: There is a saying; you scratch my back and I’ll scratch yours…  as you may already know or just guessed, the phrase means– if you do something for me then I will, in turn, do something equal for you... It’s a matter of fairness, which is something that most people want from most aspects of their life, and this is certainly true in the workplace…

Most people look for a job that rewards them for what they can bring to the organization; that is, skills, abilities, knowledge, loyalty… and, they expect to be rewarded fairly… but unfortunately, fairness is not always achieved. When unfairness rears its ugly head, it’s usually accompanied with lack of motivation, lower performance, decreased job satisfaction… Employees expect to be rewarded fairly and comparable to other employees…

The Equity Theory is a very simplistic yet logical theory of workplace motivation and it’s based on the premise that employees will put forth a particular level of work effort that they feel compares fairly to the rewards they will receive… It comes down to a straight forward formula– ‘input’ must equal ‘output’… and when balance is achieved, it’s believed employees are more willing, motivated to work harder toward higher levels of productivity…

But, when it comes to fairness workers rely heavily on perception; namely; what do they perceive to be fair and equal? When a reward is perceived as equitable to the level of effort that is exerted, then there is positive outcome… and a higher level of motivation should be expected… whereas, the reverse is also true– the perception of less fairness, begets less motivation, begets less outcome…

equity slide_26

In the article Equity Theory of Motivation: Business Applications for Managers by skyler greene writes: Motivation theories take many flavors. Some deal with employees’ basic needs, while others deal with employees’ expectations… Whereas, the Equity Theory say that motivation is primarily based on the ‘equity’ (or fairness) of the ‘outcome/input’ ratio... That is, the relationship between ‘inputs’, and ‘outcomes’… And, if employees see that others receive better outcomes for the same work (or the same outcome for less work), then they’re less likely to be motivated to work harder… Employees are unlikely to work harder if ‘inequity’ or lack of fairness exists.

There are three basic situations that can occur:

First, ‘equity’-when ‘outcomes/inputs’ for the employee is equal to ‘outcomes/inputs’ for other employee (reference)… and, if both employees ratios’ of contributions to outcomes is equivalent– equity has occurred

Second, ‘over-payment inequity’-when an employee receives more rewards than the reference employee, given equal contributions… then it’s negative because there is no motivation for an employee to work harder, since they already receive ‘more for less work’…

Third, ‘under-payment inequity’ when an employee is ‘under-paid’ compared to the reference employee… then it’s a negative because there is no motivation for an employee to work harder, since they receive ‘less for the same work’... Both ‘under-payment’ and ‘over-payment’ inequity are negative for an employee’s morale…

It’s important to note– the Equity Theory does not mean all employees are treated equally… that is, employee equity does not mean each employee would receive the exact same level of rewards… But rather, a proper interpretation of Equity Theory means an employee will receive rewards that are proportionate to the level of contributions or outcomes for the organization…

In the article Dual Entitlement and Peter Drucker’s Equity Theory by Charlie Cory writes: In business, the Equity Theory describes the relationship between how ‘fairly’ employees perceives that they are treated and how hard they are motivated to work. Peter Drucker first proposed the link between Equity Theory and employees motivation.

The basic idea behind the Equity Theory is that workers, in an attempt to balance– what they put into their jobs and what they get out– they will unconsciously assign values to each of their various contributions, for example; experience, relationships, personal strengths… and, of course, money for many workers is the primary motivating outcome but, it’s not the only one… for example; for other workers the desired outcome might be– power, status, position… for still others it may be– better work schedule, flexibility…

Hence, according to the Equity Theory; most highly motivated employees are those who perceives rewards as being equal to their contributions, and also the feeling that they are being rewarded at a comparable rate as co-workers… This does not mean that every manager should treat every employee identically, since workers tend to measure contributions in different ways… Research on the Equity Theory has shown, in general, that over-rewarded–motivated workers will produce more outcome, and higher quality than under-rewarded–less motivated workers…

equity thRGMN4G5O

The Equity Theory introduces in the workplace 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... Employees who perceive inequity will seek to reduce it, either by distorting inputs and/or outcomes in their own minds (i.e., cognitive distortion), and directly altering inputs and/or outcomes… or leave the organization.

Thus, the theory has wide-reaching implications for employee– morale, efficiency, productivity, turnover… Among the many business theories on job motivation, the Equity Theory contends that pay and conditions are not enough to motivate a workforce… According to Crystal Vogt; the three primary assumptions applied to most business applications of the Equity Theory can be summarized as follows:

  • Employees expect a fair return for what they contribute to their jobs, a concept referred to as the ‘equity norm’…
  • Employees determine what their equitable return should be after comparing their inputs and outcomes with those of coworkers. This concept is referred to as ‘social comparison’…
  • 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 (i.e., cognitive distortion), by directly altering inputs and/or outputs, or by leaving the organization…

Much like the ‘five levels of needs’ determined by Maslow and the ‘two factors of motivation’ classified by Herzberg, the Equity Theory of motivation states– greater outcomes and high levels of motivation can be expected only when employees perceive their treatment to be fair… However, the employees perceptions may include many other factors…

The basic idea behind the Equity Theory is to strike a healthy balance between an employee’s outputs and inputs, as well as, balance with other employees– all weighed in a way that is reasonably equal, and fair… However, if the balance lies too far in favor of the employer then some employees may work to bring back the basic balance; for example; some employee might ask management for more rewards, or other employees might become less motivated and decrease work efforts (inputs), and still others will just give-up and seek alternative employment…

Bottom-line, without employee fairness and balance the organization will suffer…