Case Incident 1: It’s Not Fair!

1. The executive compensation issue relates to equity theory because aspects of equity theory,

like referents, are used to determine the compensation amount for executives. The referent others

should be other executives in similar businesses. I think the business being compared has to be

similar in not only the same concept but also the same type of location and success level. The

referent chosen to compare should also have the same gender type position. According to the

textbook, “employees in jobs that are not sex segregated will likely make more cross sex

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comparisons”. Equally, same sex positions will make comparisons accordingly. Some relevant

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inputs for top executives are education, level of experience and competence

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2. I do not think that the scenario given in the book takes into account many procedural justice
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actions. The textbook states, “Two key factors of procedural justice are process control and
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explanations”. As far as process control goes I suppose the executives put the idea out there that

they wanted a raise or bonus, although that was not stated in the scenario. For the next factor,
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equity theory could be an explanation as to why and how the bonuses were determined. I think

the suggestion of having a cap on executive compensation is more expressive of procedural

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justice. In that case it would be easy for executives to present their thoughts on bonuses but then
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it would also be easy for the committees to explain the bonuses are determined by the lowest

paid employee.
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 3. There are a few positive outcomes when tying compensation pay to performance. The first and

most obvious outcome could be an increase in productivity. When the situation is like the “you

get what you put in” concept, the compensations are motivations for employees to work better.

Another positive outcome would be an increase in positive employee attitudes. When the

employees work hard and get recognized for it, that increases the morale of the whole workplace.

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