Equity Theory

Objective
Definition of Equity theory
Basics of Equity theory
Inputs and Output of Equity theory
4 propositions of Equity theory
Fairness model
Summary
 Definition of equity

An individual considers that he is treated fairly if he

perceives the ratio of his inputs to his outcomes to be
equivalent to those around him.
Equity Theory (Adams, 1963)

People seek fair reward for their job contribution -

an exchange

They compare their exchanges with their employer

to exchanges with others-insiders and outsiders
called referents

Incase of inequity the person will seek the justice

Equity Theory - Exchange Scenarios

Case 1: Equity – Fair treatment

Case 2: Inequity- Underpayment

Case 3: Inequity - Overpayment

Background of Equity Theory
Efforts to restore
the equity in the
relationship

Distress due to Focus on fair

Background of distribution of
under-reward or
Equity theory resources to all
over- reward

Equal ratio of
benefits and
contribution
Consequences of Inequity
The employee’s motivation towards an equitable
exchange with the employer

To reduce inequity, employee may…

◦ Reduce inputs
◦ Try to influence manager to increase outcome
◦ Try to influence co-workers’ inputs
◦ Withdraw emotionally - or physically
Equity Theory consists of four
propositions:
Develop tools to pay people in proportion to their
contributions
Identify pay competitors and internal pay
comparators
Strive for consistent pay allocations
Monitor internal pay structure and position in the
labor market for consistency
 Fairness Model

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 allows for the perceived
equity/inequity of the overarching system to be
incorporated into individuals' evaluations of
their relationships (Carrell and Dittrich, 1978)
Equity Sensitivity Construct
The Equity Sensitivity Construct proposes three archetypal
classes are as follows:
 Benevolent, those who prefer their own input/outcome
ratios to be less than those of their relational partner. In
other words, the benevolent prefers to be under-benefitted.

 Equity Sensitive, those who prefer their own input/outcome

ratios to be equal to those of their relational partner.

 Entitled, those who prefer their own input/outcome ratios to

exceed those of their relational partner. In other words, the
entitled prefers to be over-benefitted. (Huseman, Hatfield &
Miles, 1987)
Summary:
Employees expect a fair return for what they
contribute to their jobs
Employees determine what their equitable return
should be after comparing their inputs and outcomes
with those of their coworkers.
Employees who perceive themselves in an inequitable
situation tries to reduce the inequity by directly
altering inputs and/or outputs, or by leaving the
organization (Carrell and Dittrich, 1978)
Thank you