Equity theory

Equity theory is known as one of the general theory, which is very efficient in
predicting employee behavior. Equity also defined as justice, inequity-injustice.
Inequity exists for an individual when he or she perceives an imbalance in the ratio
between outcomes (reward for work) and inputs (efforts at work) as other
workers outputs and incomes

According to www.whatishumanresource.com (n.a), equity theory was first developed

by John Stacey Adams, a workplace and behavioral psychologist, in 1963. He proposed
that an employee’s motivation is affected by whether the employee believes that their
employment benefits/rewards are at least equal to the amount of the effort that they
put into their work. This theory has been applied to predict employee’s responses in
diverse areas such as philanthropic relationships, industrial relationships, exploitative
relationship and intimate relationships. Equity Theory proposes that a person's
motivation is based on what he or she considers being fair when compared to others
(Redmond, 2010). As noted by Gogia (2010), when applied to the workplace,
Equity Theory focuses on an employee's work-compensation relationship or
"exchange relationship" as well as that employee's attempt to minimize any sense of
unfairness that might result in their workplace. According to Gogia, (2010), because
Equity Theory deals with social relationships and fairness/unfairness, it is also
known as The Social Comparisons Theory or Inequity Theory. In other simple meaning,
this equity can be achieved when the ratio of employee outcomes over inputs is
equal to other employee outcomes over inputs (Baxamusa, 2012)

Equity theory focuses on determining whether the distribution of resources is fair to

both relational partners. Equity is measured by comparing the ratio of contributions (or
costs) and benefits (or rewards) for each person. [1] Considered one of the justice
theories, equity theory was first developed in 1969 by J. Stacy 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, 1969). 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.

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 (and input) is higher. The way people base their experience
with satisfaction for their job is to make comparisons with themselves to 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 under-appreciated 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:

Adam’s categorised employment benefits and rewards as outputs and an employee’s
work effort as inputs.

Individuals compare their job inputs and outcomes with those of others and then
respond to eliminate any inequities. Referent Comparisons: Self-inside Self-outside
Other-inside Other-outside
Four referents that an employee can use: Self-inside: an employee’s experiences in a
different position inside the organization. Self-outside: an employee’s experiences in a
position outside of the organization. Other-inside: an employee’s perception of persons
inside the organization. Other-outside: an employee’s perception of persons outside of
the organization.

Inputs and outcomes

Inputs
Inputs are defined as each participant’s contributions to the relational exchange and are
viewed as entitling him/her to rewards or costs. The inputs that a participant contributes
to a relationship can be either assets – entitling him/her to rewards – or liabilities -
entitling him/her to costs. The entitlement to rewards or costs ascribed to each input
vary depending on the relational setting. In industrial settings, assets such as capital and
manual labor are seen as "relevant inputs" – inputs that legitimately entitle the
contributor to rewards. In social settings, assets such as physical beauty and kindness
are generally seen as assets entitling the possessor to social rewards. Individual traits
such as boorishness and cruelty are seen as liabilities entitling the possessor to costs.
Inputs typically include any of the following: Time, Education, experience, Effort, Loyalty,
Hard Work, Commitment, Ability, Adaptability, Flexibility, Tolerance, Determination,
Enthusiasm, Personal sacrifice, Trust in superiors, Support from co-workers and
colleagues and Skill

Outcomes
Outcomes 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, then the employee should have
much satisfaction with their job. Outputs can be both tangible and intangible. [2] Typical
outcomes include any of the following: Job security, Salary, Employee benefit, Expenses,
Recognition, Reputation, Responsibility, Sense of achievement, Praise, Thanks and
Stimuli

Adam’s stated that if an employee believes that their work outputs are not equal or
greater than their inputs then the employee will become de-motivated. Adams’ theory
includes the assertion that when an employee is assessing whether the outputs they
receive are fair the employee will often compare their colleague’s work inputs and
outputs with their own. The comparison will often be made with an employee at a
similar level in the organisation to the employee.

Propositions
Equity theory consists of four propositions:

Individuals seek to maximize their outcomes (where outcomes are defined as rewards
minus costs).

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.

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.

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.

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). These perceptions of inequity are perceptions of organizational
justice, or more specifically, injustice. Subsequently, the theory has wide-reaching
implications for employee morale, efficiency, productivity, and turnover.

Advantages and Disadvantages of Equity Theory

Human beings are different from other living beings because they have emotions and it
is due to emotions that we do not like unequal treatment between two people who are
putting same effort whether it’s at home or at a college or at work. Equity theory of
motivation tries to address this problem of unequal treatment among employees in a
company and its effect on the overall motivation of the employees because slight
unequal treatment is present everywhere but when this unequal treatment becomes
excessive than it hampers the motivation of the employees in a negative way which can
be disastrous for the company as a whole. In order to understand more about this
concept, one should look at the advantages and disadvantages of equity theory of
motivation

Advantages of Equity Theory of Motivation

Helps in Reducing Exploitation
The first and foremost advantage of equity theory of motivation is that it helps in
reducing the exploitation of the employees because if there are ten workers doing the
same kind of work and if company is paying higher salary to 5 workers as compared to
other 5 workers than it is nothing but exploitation of those 5 workers who are getting
less pay or for that matter if 5 workers are getting 2 lunch breaks and other 5 workers
are getting 1 lunch break only than also equality principle is not followed. In simple
words, the company should not discriminate between workers doing the same kind of
work whether it’s in monetary terms or in working condition terms.

Source of Motivation
When workers know that all workers are getting equal and fair treatment then it leads to
motivation in them as they know if they work together as a team than all of them will
get good increment as well as good working conditions resulting in better efficiency and
effectiveness in their work.

Better Relations between Workers

It leads to better relations between the workers because in the case of companies the
biggest reason for altercations between workers is the unfair and unequal treatment
given by the company to workers having the same caliber. In simple words, the daily
tussle or leg pulling between the workers of proving that they are better than their
counterparts will not be there if a company is following equity theory of motivation
which in turn will lead to more cordial work atmosphere in the company leading to
better output from workers.

Disadvantages of Equity Theory

Difference of Perception
The first and foremost disadvantage of equity theory of motivation is that there is
difference in perception between company and worker because a worker may think that
he or she is working same as other worker but getting less pay but it may be possible
that another worker according to company is more effective and efficient than other
worker and that is the reason why he or she is getting better pay than other workers.
Hence for example, if there are 5 doctors working in a hospital while 4 doctors are
giving regular duty but one doctor is in the emergency ward and hospital administration
pays higher pay to that doctor than it is justified although other doctors may think
otherwise.

Exact Comparison Difficult

Workers tend to compare themselves with others and then they demand the same
position or same pay as other workers but we all know that each human is different and
workers working in the company are no exception. In simple words unlike products that
can be homogenous and hence company can charge the same price for the same
product in case of humans such practice is not possible and that is the reason why
equity theory of motivation may not prove to be effective.

All other Factors are Ignored

Another limitation of this theory is that it does not take into account other factors of
motivation; hence for example, if workers are getting equal treatment in every aspect
than it is not necessary that he or she will work efficiently and effectively. Hence for
example, if one worker is getting same pay and position like other workers in the
company but if he or she gets a good job offer from a competitor company than he or
she will leave the company despite company following equity theory of motivation.
As one can see from the above that equity theory has advantages as well as
disadvantages and that is the reason why any company thinking of taking action on the
basis of above theory should carefully read above points and then only should take the
dec
Criticisms and related theories
Criticism has been directed toward both the assumptions and practical application of
equity theory. Scholars have questioned the simplicity of the model, arguing that a
number of demographic and psychological variables affect people's perceptions of
fairness and interactions with others. Furthermore, much of the research supporting the
basic propositions of equity theory has been conducted in laboratory settings, and thus
has questionable applicability to real-world situations.

Critics have also argued that people might perceive equity/inequity not only in terms of
the specific inputs and outcomes of a relationship, but also in terms of the overarching
system that determines those inputs and outputs. Thus, in a business setting, one might
feel that his or her compensation is equitable to other employees', but one might view
the entire compensation system as unfair.
Researchers have offered numerous magnifying and competing perspectives:

Fairness model
The Fairness Model proposes an alternative measure of equity/inequity to the relational
partner or "comparison person" of standard equity theory. According to the Fairness
Model, an individual judges the overall "fairness" of a relationship by comparing their
inputs and outcomes with an internally derived standard. The Fairness Model thus
allows for the perceived equity/inequity of the overarching system to be incorporated
into individuals' evaluations of their relationships (Carrell and Dittrich, 1978).
Game theory
Behavioral economics has recently started to apply game theory to the study of equity
theory. For instance, Gill and Stone (2010) analyze how considerations of equity
influence behavior in strategic settings in which people compete and develop the
implications for optimal labor contracts.

CONCLUSION
In conclusion, equity theory always has been used as one of the best tools in motivating
employees. The Culturally-Sensitive equity model can be used as a tool for
international managers who either have employees, customers, or suppliers in both the
Western and Eastern regions of the world. Through the use of this model, these
managers can gain a global understanding and have a true appreciation for the
various inputs and outcomes that motivate their employees based on orientation and
cultural perspectives .

Equity in the workplace is so important is that employees need to feel that they
have some control over their future with their employer. An unfair system is one in
which has a lack of predictability, so that arbitrary decisions are made and employees
fear victimization. Unfair systems undermine the employees believe that efforts will
result in valid outcomes. Managers should be aware of the benefits of behaving toward
subordinates in a manner perceived as fair.
Managers should be concerned with how they treat their employees because
employee’s perceptions of that treatment could affect the level of citizenship
behavior. Also, their
understanding of equity theory and the different situations of under reward and
over reward reactions and how it would affect on the organization such as strikes,
grievances, lowering performance, theft, quitting and others.
References
Guerrero, Laura K; Peter A. Andersen & Walid A. Afifi. (2014). Close Encounters:
Communication in Relationships, 4th Edition. Los Angeles, CA: Sage Publications Inc.
p. 263. ISBN 978-1-4522-1710-9.
Cook, ed. by Mark; Wilson, Glenn (1979). Love and attraction : an internat. conference
(PDF) (1. ed.). Oxford [u. a.]: Pergamon Pr. pp. 309–323. ISBN 008022234X. Retrieved 3
June 2012.
E.g. ultimatum games show, that the maximation of outcomes is only one of several
objectives for an individual. In order to foster rules desired by an individual, the
individual may be willing to sacrifice maximum outcomes. (Bala)

Gill, D, and Stone, R. (2010). Fairness and desert in tournaments. Games and Economic
Behavior. 69: 346–364.

Guerrero, Andersen, and Afifi. (2007). Close Encounters: Communication in Relationships,

2nd edition. Sage Publications, Inc.

Huseman, R.C., Hatfield, J.D. & Miles, E.W. (1987). A New Perspective on Equity Theory:
The Equity Sensitivity Construct. The Academy of Management Review. 12;2: 222-234.