When people feel fairly or advantageously treated they are more likely to be motivated; when they feel unfairly treated they are highly prone to feelings of disaffection and demotivation.
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. The belief in equity theory 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.
Words like efforts and rewards, or work and pay, are an over-simplification – hence the use of the terms inputs and outputs. Inputs are logically what we give or put into our work. Outputs are everything we take out in return.
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Inputs
This equity theory term ecompasses the quality and quantity of the employees contributions to his or her work. Typical inputs include time, effort, loyalty, hard work, commitment, ability, adaptability, flexibility, tolerance, determination, enthusiasm, personal sacrifice, trust in superiors, support from co-workers and colleagues, skill…
Outputs
Outputs in equity theory 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. Outputs can be both tangible and intangible. Typical outcomes are job security, esteem, salary, employee benefits, expenses, recognition, reputation, responsibility, sense of achievement, praise, thanks, stimuli…
It’s all about the money
Payment however, is the main concern and therefore the cause of equity or inequity in most cases. In any position, an employee wants to feel that their contributions and work performance are being rewarded with their pay. According to equity theory, if an employee feels underpaid then it will result in the employee feeling hostile towards the organization and perhaps their co-workers, which may result the employee not performing well at work anymore.
It’s the subtle variables that also play an important role for the feeling of equity. Just the idea of recognition for the job performance and the mere act of thanking the employee will cause a feeling of satisfaction and therefore help the employee feel worthwhile and have more outcomes.
Perception of equity
But Adams’ Equity Theory is a far more complex and sophisticated motivational model than merely assessing effort (inputs) and reward (outputs). Equity Theory adds a crucial additional perspective of comparison with ‘referent’ others (people we consider in a similar situation). ‘Referent’ others are used to describe the reference points or people with whom we compare our own situation, which is the pivotal part of the theory.
Equity does not depend on our input-to-output ratio alone – it depends on our comparison between our ratio and the ratio of others. We form perceptions of what constitutes a fair ratio (a balance or trade) of inputs and outputs by comparing our own situation with other ‘referents’ (reference points or examples) in the market place as we see it.
If we feel are that inputs are fairly rewarded by outputs (the fairness benchmark being subjectively perceived from market norms and other comparable references) then generally we are happier in our work and more motivated to continue inputting at the same level.
If we feel, however, that our ratio of inputs to outputs is less beneficial than the ratio enjoyed by referent others, then we become demotivated in relation to our job and employer.
Examples of equity theory at work
In practice this helps to explain why people are so strongly affected by the situations (and views and gossip) of colleagues, friends, partners etc., in establishing their own personal sense of fairness or equity in their work situations.
Equity Theory explains why people can be happy and motivated by their situation one day, and yet with no change to their terms and working conditions can be made very unhappy and demotivated, if they learn for example that a colleague (or worse an entire group) is enjoying a better reward-to-effort ratio.
This also explains why and how full-time employees will compare their situations and input-to-output ratios with part-time colleagues, who very probably earn less, however it is the ratio of input-to-output – reward-to-effort – which counts, and if the part-timer is perceived to enjoy a more advantageous ratio, then so this will have a negative effect on the full-timer’s sense of Equity, and with it, their personal motivation.
Mechanisms
Equity Theory consists of four proposed mechanisms for (de)motivation:
- 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.
People respond to a feeling of inequity in different ways
Generally the extent of demotivation is proportional to the perceived disparity with other people or inequity, but for some people just the smallest indication of negative disparity between their situation and other people’s is enough to cause massive disappointment and a feeling of considerable injustice, resulting in demotivation, or worse, open hostility.
Some people reduce effort and application and become inwardly disgruntled, or outwardly difficult, recalcitrant or even disruptive. Other people seek to improve the outputs by making claims or demands for more reward, or seeking an alternative job.
Equity Theory in companies
Equity Theory in business 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.
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. Thus, the theory has wide-reaching implications for employee morale, efficiency, productivity, and turnover.
Assumptions of Equity Theory applied to business
The three primary assumptions applied to most business applications of 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 their coworkers (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 (“cognitive distortion”), by directly altering inputs and/or outputs, or by leaving the organization.
Implications of Equity Theory for managers
Understanding Equity Theory – and especially its pivotal comparative aspect – helps managers and policy-makers to appreciate that while improving one person’s terms and conditions can resolve that individual’s demands (for a while), if the change is perceived by other people to upset the equity of their own situations then the solution can easily generate far more problems than it attempted to fix.
Equity Theory reminds us that people see themselves and crucially the way they are treated in terms of their surrounding environment, team, system, etc – not in isolation – and so they must be managed and treated accordingly.
Equity Theory has several implications for business managers:
- People measure the totals of their inputs and outcomes. This means a working mother may accept lower monetary compensation in return for more flexible working hours.
- Different employees ascribe personal values to inputs and outcomes. Thus, two employees of equal experience and qualification performing the same work for the same pay may have quite different perceptions of the fairness of the deal.
- Employees are able to adjust for purchasing power and local market conditions. Thus a teacher from Alberta may accept lower compensation than his colleague in Toronto if his cost of living is different, while a teacher in a remote African village may accept a totally different pay structure.
- Although it may be acceptable for more senior staff to receive higher compensation, there are limits to the balance of the scales of equity and employees can find excessive executive pay demotivating.
- Staff perceptions of inputs and outcomes of themselves and others may be incorrect, and perceptions need to be managed effectively.
- An employee who believes he is over-compensated may increase his effort. However he may also adjust the values that he ascribes to his own personal inputs. It may be that he or she internalizes a sense of superiority and actually decrease his efforts.
Relation of Equity Theory to other theories
The comparative aspect of Equity Theory provides a far more fluid and dynamic appreciation of motivation than typically arises in motivational theories and models based on individual circumstance alone.
There are similarities with Maslow and Herzberg in that the theory acknowledges that subtle and variable factors affect each individual’s assessment and perception of their relationship with their work, and thereby their employer. However, awareness and cognizance of the wider situation – and crucially comparison – feature more strongly in Equity Theory than in other earlier motivational models.
Implications of Equity Theory for financial rewards
People may feel guilty because they feel they don’t deserve the bonus. Or they may feel undervalued because someone else did get one, and they perceive their inputs to be superior to the person that got the bonus.
There are limits to the balance of the scales of equity and employees can find excessive executive pay demotivating.
Staff perceptions of inputs and outcomes of themselves and others may be incorrect, and perceptions need to be managed effectively.
An employee who believes he is over-compensated may increase his effort. However he may also adjust the values that he ascribes to his own personal inputs. It may be that he or she internalizes a sense of superiority and actually decrease his efforts.