Equity theory is based in the idea that individuals are motivated by fairness, and if they identify inequities in the input or output ratios of themselves and their referent group, they will seek to adjust their input to reach their perceived equity. Adams suggested that the higher an individual’s perception of equity, the more motivated they will be and vice versa: if someone perceives an unfair environment, they will be de-motivated.
The easiest way to see the equity theory at work, and probably the most common way it does impact employees, is when colleagues compare the work they do to someone else that gets paid more than them. Equity theory is at play anytime employees say things like, ‘John gets paid a lot more than me, but doesn’t do nearly as much work,’ or ‘I get paid a lot less than Jane, but this place couldn’t operate without me!’ In each of those situations, someone is comparing their own effort-to-compensation ratio to someone else’s and is losing motivation in the process.
This Theory show:
- Inputs: Inputs include all the rich and diverse elements that employees believe they bring or contribute to the job – their education, experience, effort, loyalty, commitment.
- Outcomes: Outcomes are rewards they perceive they get from their jobs and employers outcomes include- direct pay and bonuses, fringe benefit, job security, social rewards and psychological.
- Over rewarded: if employees fell over-rewarded equity theory predicts then they will feel an imbalance in their relationship with their employee and seek to restore that balance.
- Equity: if employees perceive equity then they will be motivated to continue to contribute act about the same level.
- Unrewarded: unrewarded who feel they have been unrewarded and seek to reduce their feeling in equity through the same types of strategies but same of this specific action are now reverse.
This theory is based on the following two assumptions about human behavior:
Individuals make contributions (inputs) for which they expect certain outcomes (rewards). Inputs include such things as the person’s past training and experience, special knowledge, personal characteristics etc. Outcomes include pay, recognition, promotion, prestige, fringe benefits etc.
Individuals decide whether or not a particular exchange is satisfactory, by comparing their inputs and outcomes to those of others, in the form of a ratio. Equity exists when an individual concludes that his/her own outcome/input ratio is equal to that of other people.
The essential aspects of the equity theory may be shown by an equation;
There should be a balance of the outcomes/inputs relationship for one person in comparison with that for another person. If the person thinks that the rewards are greater than what is considered, he/she may work harder.
If the person perceives the rewards as equitable, he/she probably will continue at the same level of output.
If the person feels that he/she is inequitably rewarded, he/she may be dissatisfied, reduce the quantity or quality of output, or even leave the organization.
The three situations of equity theory are illustrated in the following figure:
Roles played by equity in motivation:-
- Employees make comparisons between their job inputs and outcomes relative to those of others.
- If we perceive our ratio to be equal to that of the relevant others with whom we compare ourselves, a state of equity is said to exist. We perceive our situation as fair.
- When we see the ratio as unequal, we experience equity tension.
- Additionally, the referent that an employee selects adds to the complexity of equity theory. There are four referent comparisons that an employee can use:
- Self-inside: An employee’s experiences in a different position inside his or her current organization.
- Self-outside: An employee’s experiences in a situation or position outside his or her current organization.
- Other-inside: Another individual or group of individuals inside the employee’s organization.
- Other-outside: Another individual or group of individuals outside the employee’s organization.
- Which referent an employee chooses will be influenced by the information the employee holds about referents, as well as by the attractiveness of the referent. There are 4 moderating variables: gender, the length of tenure, level in the organization, and the amount of education or professionalism. Men and women prefer same-sex comparisons. This also suggests that if women are tolerant of lower pay, it may be due to the comparative standard they use. Employees in jobs that are not sex-segregated will make more cross-sex comparisons than those in jobs that are either male- or female-dominated.
- Employees with a short tenure in their current organizations tend to have little information about others.
- Employees with long tenure rely more heavily on coworkers for comparison.
- Upper-level employees tend to be more cosmopolitan and have better information about people in other organizations. Therefore, these types of employees will make more other- outside comparisons.
- When employees perceive an inequity, they can be predicted to make one of six choices:
- Change their inputs.
- Change their outcomes.
- Distort perceptions of self.
- Distort perceptions of others.
- Choose a different referent.
- Leave the field.
- The theory establishes the following propositions relating to inequitable pay:
- Given payment by time, over-rewarded employees will produce more than will equitably pay employees.
- Given payment by the quantity of production, over-rewarded employees will produce fewer, but higher quality, units that will equitably pay employees.
- Given payment by time, under-rewarded employees will produce less or poorer quality of output.
- Given payment by the quantity of production, under-rewarded employees will produce a large number of low-quality units in comparison with equitably paid employees.
- These propositions have generally been supported with a few minor qualifications.
- Inequities created by over-payment do not seem to have a very significant impact on behavior in most work situations.
- Not all people are equity-sensitive.
- Employees also seem to look for equity in the distribution of other organizational rewards.
- Finally, recent research has been directed at expanding what is meant by equity or fairness.
- Historically, equity theory focused on distributive justice or the perceived fairness of the amount and allocation of rewards among individuals.
- Equity should also consider procedural justice, the perceived fairness of the process used to determine the distribution of rewards.
- The evidence indicates that distributive justice has a greater influence on employee satisfaction than procedural justice,
- Procedural justice tends to affect an employee’s organizational commitment, trust in his or her boss, and intention to quit.
- By increasing the perception of procedural fairness, employees are likely to view their bosses and the organization as positive even if they are dissatisfied with pay, promotions, and other personal outcomes.
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