Equity Theory

Equity theory is one of the most popular motivation theories in managing and motivating employee
performance. 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.

John Stacey Adams

According to him, equity theory was first developed by John Stacey Adams, a workplace and behavioral
psychologist, in 1963. He proposed that an employees 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 employees responses in diverse areas such as philanthropic
relationships, industrial relationships, exploitative relationship and intimate relationships (Berkowitz &
Walster[Hatfield], 1976). Equity Theory proposes that a person's motivation is based on what he or she
considers being fair when compared to others (Redmond, 2010).

Gogia (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)

Hatfield and Traupmann (1980)

According to Hatfield and Traupmann (1980), equity theory is composed of 4 interlocking propositions.
First, the employee will try to maximize their outcomes (outcomes equal rewards minus punishment).
Groups of employee can maximize their collective reward by evolving accepted systems for equitably
apportioning resources among members. Thus, (a) groups will improve such systems of equity, and
attempt to induce members to accept and adhere to those systems, and (b) groups will generally reward
employees who treat others equally and generally punish employees who treat other inequitably. Third,
when individuals find themselves in inequitable relationships, they will become distressed or dissatisfied.
The more inequitable the relationship, the more distressed or dissatisfied they will feel. And the fourth,
employees that discover or realize they are in inequitable relationships will attempt or try to eliminate
their distress or dissatisfied by demanding for their rights of equality. The higher the inequity that exists,
the more distress or dissatisfied exists they will feel and the more they will try to restore their equity.

Equity Theory - Exchange Scenarios

Case 1: Equity -- pay allocation is perceived to be to be fair - motivation is sustained

Case 2: Inequity -- Underpayment. Employee is motivated to seek justice. Work motivation is disrupted.
Case 3: Inequity - Overpayment. Could be problem. Inefficient. In other cultures employees lose face.

Consequences of Inequity

The employee is motivated to have an equitable exchange with the employer.

To reduce inequity, employee may
Reduce inputs (reduce effort)
Try to influence manager to increase outcomes (complain, file grievance, etc.)
Try to influence co-workers inputs (criticize others outcomes or inputs)
Withdraw emotionally - or physically (engage in absenteeism, tardiness, or quit)

Equity Theory Applications

Develop tools to pay people in proportion to their contributions

Let employees know who their pay referents are in the pay system: identify pay competitors and internal
pay comparators.
Strive for consistent pay allocations
Monitor internal pay structure and position in the labor market for consistency.

References:

(n.d.). Retrieved March 28, 2017, from https://www.google.com.ph/url?

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%2F264657058%2FWhat-is-equity-theory-pdf&usg=AFQjCNGuERv7CXyHDUAJCv4zvS-
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(n.d.). Retrieved March 28, 2017, from https://www.google.com.ph/url?
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%2FMGMT4030%2FEquityReinforcement.ppt&usg=AFQjCNEUbwIlVXGrwd4UITfaPGAKX0
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