Equity Theory-Balancing Outcomes & Inputs (IJMBA) by Dr. Fred C. Lunenburg

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INTERNATIONAL JOURNAL OF MANAGEMENT, BUSINESS, AND ADMINISTRATIONVOLUME 15, NUMBER 1, 2011

Equity Theory: Balancing Outcomes and Inputs

An Important Determinant of Employee Motivation

Fred C. LunenburgSam Houston State University

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ABSTRACT

Equity theory is a model of motivation that explains how people strive for fairness and justice in social exchanges. Adams contends that two primary components are involvedin the employee-employer exchange, outcomes and inputs. According to equity theory,what is important in determining work motivation is the way an employee perceives hisor her outcome/input ratio compared to the outcome/input ratio of a comparison other.Recent development in equity or fairness is organizational justice which includes threedimensions: distributive, procedural, and interactional justice. _______________________________________________________________________

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Frederick Herzberg (1987) found during his development of the satisfaction-dissatisfaction theory, also known as the two-factor theory, dual-factor theory, or themotivation-hygiene theory, that feelings of inequity were a frequently reported source of dissatisfaction among employees (Herzberg, 2009). Although Herzberg did not pay muchattention to this finding, a number of theorists have examined the concept of equity toexplain employee motivation and organizational justice. Among them, J. Stacy Adams(1965) has developed the most detailed and organizationally relevant equity theory.

Equity theory asserts that employees hold certain beliefs about the outputs theyreceive from their work and the inputs they invest to obtain these outcomes. Theoutcomes of employment refer to all things the employee receives as a result of

performing the job, such as salary, promotions, fringe benefits, job security, workingconditions, job prerequisites, recognition, responsibility, and so on. Inputs cover allthings that the employee contributes to performing the job and include education,experience, ability, training, personality traits, job efforts, attitude, and so on. Employeesexpect that the ratio of their outcomes to inputs will be fair or equitable. But how doemployees judge fairness?



General Equity Model

Simply put, equity theory argues that employees evaluate the equity, or fairness,of their outcomes by a process of social comparison. Employees compare the ratio of their outcomes to inputs with the ratio of outcomes to inputs for some comparison other.The comparison other may be a colleague or a group average (such as prevailingstandards in a company, product line, or job role). For example, managers often use other managers in similar-sized companies and product lines as the comparison other rather than managers of smaller-sized companies and different product lines. The equityrelationship can be diagrammed as follows:

Outcomes Outcomes(employee) (comparison others)

Inputs versus Inputs(employee) (comparison others)

When the ratios are equal, the employee should feel that a fair and equitable exchangeexists with the employer. Such equitable exchange should contribute to employee-jobsatisfaction. Conversely, when ratios are unequal, inequity is perceived by the employee,which should contribute to job dissatisfaction. Obviously, the ideal ratio betweenoutcomes and inputs is perfect equity. Schematically, perfect equity is


Inputs = Inputs(employee) (comparison others)

Inequity can occur in either direction: (1) when employees feel their ratio of outcomes toinputs is less than that of the comparison other and (2) when employees feel their ratio of outcomes to inputs is greater than that of the comparison other. The first situation, inwhich the employee’s perceived outcomes-to-inputs ratio is less than the comparisonother, can be diagrammed as follows:


Inputs < Inputs(employee) (comparison others)

The second situation, in which the employee’s perceived ratio of outcomes to inputs isgreater than that of the comparison other, can be diagrammed as follows:


Inputs > Inputs



(employee) (comparison others)

This prediction is less straightforward than the former because the employee is at anadvantage vis-à-vis the comparison other. Nevertheless, the theory argues that employeeswill feel uncomfortable about the inequity of their outcomes-to-inputs ratio compared to

the outcomes-to-inputs ratio of their comparison other.Comparisons of the inputs and outputs of the employee and comparison other aresimilar to those judgments made by employees according to expectancy theory. They are based on the employee’s perceptions, which may or may not be valid. Inequity in either direction creates discomfort and tension, and the employee is motivated to reduce thetension and restore equity.

Methods of Restoring Equity

An employee may engage in any of the following behaviors to restore equity:

alter inputs, alter outcomes, cognitively distort inputs or outcomes, change the inputs or outcomes of the comparison other, change the comparison other, or leave theorganization (Porter, 2003). Each one will be discussed in turn.

Alter Inputs

An employee who feels underpaid may contribute less time and effort to the jobor demand a salary increase. An employee who feels overpaid may increase the quantityand quality of his work, expend extra hours without pay, and so on.

Alter Outputs

Unions attract members by pledging to improve salary, working conditions, andhours without any increase in employee effort or input. For example, many unions havemanaged to negotiate a decrease in the amount of days worked (through increased sick leave, vacation days) while at the same time increasing salaries, fringe benefits, andworking conditions.

Cognitively Distort Inputs or Outcomes

According to the theory of cognitive dissonance, the individual tries to modifyone of the incompatible perceptions so as to reduce the tension or dissonance. In a sense,that person engages in coping behavior to regain a condition of consonance or equilibrium. For example, if a colleague (comparison other) were receivingdisproportionately high outcomes in comparison with another employee, that fact couldmake the employee tense. As a coping strategy, the employee could distort his perception by reasoning that the comparison other possesses more job knowledge or intelligencethan the employee does. Conversely, an employee can justify the disproportionately highoutcomes he receives by convincing himself that he possesses more experience or abilitythan the comparison other does.



Change the Inputs or Outcomes of the Comparison Other

Behaviors designed to change the actual or perceived inputs or outcomes of the

comparison other can take many forms. A colleague (comparison other) may be forced toreduce his inputs, or a colleague may be pressured into leaving the organization. Or thecomparison other’s inputs or outputs may come to be viewed differently. For example, anemployee may come to believe that the comparison other actually works harder than hedoes and therefore deserves greater outcomes or rewards.

Change the Comparison Other

If the input-to-outcome ratio of an employee to a comparison other results infeelings of inequity, the employee can switch his comparison other to restore equity. For example, a very ambitious CEO, who has been comparing herself to the nation’s top

CEO, may decide instead to use her colleagues in smaller companies who are paid lessthan she is as her comparison others.

Leave the Organization

An employee can request a transfer or leave the organization entirely.

Expanding the Concept of Equity:

Organizational Justice

Recent development in equity theory can be extended into what is now commonlyreferred to as organizational justice (Greenberg & Cropanzano, 2001). Organizational

justice is the extent to which organization members perceive that they are treated fairly atwork. This led to the emergence of three dimensions of organizational justice:distributive, procedural, and interactional (Colquitt, 2001). Distributive justice is the perceived fairness of how rewards are distributed. Procedural justice is the perceivedfairness of the procedures used to make decisions. Research indicates that positive perceptions of distributive and procedural justice are enhanced when organizationmembers are given input in decisions that affect them (Kamberg, M. (2012).

Interactional justice is the perceived quality of the treatment organizationmembers receive when rewards are distributed and procedures are implemented. For example, a bonus or raise in a company may be based on the number of sales theemployee produces in a given year. Employee A produces 20 sales in a given year averaging $10,000 per sale = $200,000 in increased revenue to the company. Employee B produces one sale amounting to $1,000,000 in increased revenue to the firm. Thecompany policy is to consider the number of sales in its determination of bonuses andraises, 20 sales versus one sale. Employee B may consider this procedure to be unfair, believing the company administration should instead base bonuses and pay raises onrevenue generated. A 20-sale production - $200,000 (Employee A) is not equivalent to



producing $1,000,000 in sales (Employee B). In this case, it is both the outcome(distributive justice) and the procedure (procedural justice) which is in dispute.

Among the many implications of equity theory, those dealing with organizational justice must be considered. The way organization members perceive they are treated inthe workplace with respect to distributive, procedural, and interactional justice is likely to

affect their motivation. It is their perceptions of these justice dimensions made in thecontext of equity comparisons that influence organization members’ level of motivation.

Conclusion

Equity theory is a model of motivation based on the premise that an employee perceives the relationship between the outcomes—what the employee gets from a job— and his or her inputs—what the employee contributes to the job. Outcomes includesalary, promotions, fringe benefits, job security, working conditions, job prerequisites,recognition, responsibility, and so on. Inputs include all things that the employee

contributes to performing the job and include education, experience, ability, training, personality traits, job efforts, attitude, and so on. Adams contends that what is importantin determining work motivation is the way an employee perceives his or her outcome/input ratio compared to the outcome/input ratio of a comparison other. If theemployee’s outcome/input ratio compared to the outcome/input ratio of the comparisonother is inequitable, the following methods can be used to restore equity: alter inputs,alter outputs, distort inputs or outcomes, change inputs or outcomes of the comparisonother, change the comparison other, or leave the organization. Recent development inequity or fairness is organizational justice which includes distributive, procedural, andinteractional justice.

References

Adams, J. S. (1965). Inequity in social exchanges. In L. Berkowitz (Ed.), Advances in

experimental social psychology, Vol. 1 (pp. 267-299). New York, NY: AcademicPress.

Colquitt, J. A. (2001). On the dimensionality of organizational justice: A constructvalidation of a measure. Journal of Applied Psychology, 86 , 386-400.

Greenberg, J., & Cropanzano, R. (2001). Advances in organizational justice. Palo Alto,CA: Stanford University Press.

Herzberg, F. (1987). One more time: How do you motivate employees? Harvard

Business Review, 65, 109-120.Herzberg, F. (2009). One more time: How do you motivate employees? Cambridge, MA:

Harvard Business School Press.Kamberg, M. (2012). How business decisions are made. New York, NY: Rosen

Publishing Group.Porter, L. W. (2003). Motivation and work behavior . New York, NY: McGraw-Hill.

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Equity Theory-Balancing Outcomes & Inputs (IJMBA) by Dr. Fred C. Lunenburg