Equity Theory

Written By Michael Kurtagh

Equity Theory:

Motivation is one of the major individual influencers on job performance, and one of its major theories is equity theory which this blog post will discuss.  Equity theory states that a person’s motivation isn’t solely based on personal beliefs and circumstances, but also what happens to others.  Basically equity theory is saying that a person’s motivation is affected by whether or not they feel they are being treated fairly relative to their peers.  Akan, Allen & White state that “this sense of fairness is determined by one’s rewards (e.g., pay, promotions) relative to one’s work-related inputs (e.g., education, productivity, experience) as compared with a referent other’s rewards relative to that person’s work-related inputs.” (2008)  Equity theory has three possible outcomes when the person compares themselves to their colleagues.  These outcomes are either they feel they are being rewarded equally, more, or less for their work.  Another important aspect of equity theory is that the perception of equity or inequity is just as important as the actual truth of the situation.     

Equal to Your Peers:

This is the best possible outcome of equity theory.  This is when you and the other employees you’re comparing yourself to are receiving relatively equal rewards for the same amount of work.  The perception is that you’re not being treated any better or worse than your colleagues.  As a result, there’s really no need to change anything as there is a sense of equity. 

Rewarded More Than Peers:

            In this situation the person perceives that they are being rewarded more than their colleagues for equal amounts of work.  For example, if a team of employees successfully complete a project while doing equal work and one of the team members is given a bigger bonus than the rest, they have overreward inequity.  For many people this seems like it would be a good thing, receiving rewards beyond what is expected relative to others.  The problem though is that inequity in either direction can be detrimental to an employee.  Research shows that “those who are overpaid should be more productive but still less satisfied than equitably paid workers.”   (Livingstone, Roberts & Chonko, 1995) While they may enjoy the extra benefits they gained for their work, the fact that there is inequity means they will feel separated from their peers.  This can put stress on the person by making them feel anxiety or guilt.  A worker can attempt to restore equity without giving up their extra rewards by putting more effort and time into their work.  This can help them to perceive that the extra rewards that they are receiving are a result of the extra work they are putting in.     

Rewarded Less Than Peers:

            This is probably the most demotivating of the three equity theory outcomes.  If a worker feels that they receive less than their colleagues for equal amounts of work they have very little motivation to work hard.  One option to remedy the feeling of inequity is to put in less work so that the lesser rewards seem fair.  This of course is a negative option for the organization because they have a worker that is deliberately putting in less than their best effort.  The better solution is that the person who feels they are being treated less fairly than their colleagues speaks with management.  It is important for managers to understand that whether or not inequity actually exists, if the person perceives it as existing there will be affects.  Hopefully by speaking with management, the person will either have their rewards increased or realize they wrongly perceived inequity thereby restoring their feeling of equity.   

Perception vs. Reality:

            Understanding that just the perception of inequity can cause problems in an organization is very important.  While there may be a valid reason for one employee to be receiving more for relatively equally amounts of work, if that reason isn’t known by others they may perceive inequity.  While a manager may not want to reveal all the information behind their decision making process when handling compensation and rewards, they should make an effort to not make it so vague that it allows for the perception of inequity.    

Conclusion:

            Understanding the equity theory of motivation is important for any organization.  Because of its powerful effect on job performance, managers should make an effort to promote a feeling of equity throughout the workplace.  As mentioned earlier, even the perception of inequity can cause issues so even the appearance of unequal treatment is a problem.  One of the most important steps in promoting equity is “to tie the rewards to employee performance.” (Baxamusa, 2012)  By clearly linking rewards to worker inputs, managers can not only insure they are fairly distributing rewards, they also provide employees with their thought process.  If employees understand the manager’s thought process, perceptual inequity can be avoided.  Overall, equity theory is an important facet of employee motivation and it is a major influence on job performance. 

References:

Akan, O., Allen, R., & White, C. (n.d.). Equity sensitivity and organizational citizenship behavior in a team environment. (2009). Small Group Research,40(1), 94-112. Retrieved from Sage Journals.

Baxamusa, B. N. (2012). Equity theory of motivation. Retrieved from http://www.buzzle.com/articles/equity-theory-of-motivation.html

Livingstone, L. P., Roberts, J. A., & Chonko, L. B. (n.d.). Perceptions of internal and external equity as predictors of outside salespeoples. (1995). The Journal of Personal Selling and Sales Management, 15(2), 33-46. Retrieved from JSTOR.