What is Equity Theory?
Pursuant to Equity theory, individuals are motivated by being treated fairly. Perceptions of fairness is generally a result of social comparison. That is, we compare our efforts (inputs) and the results of our effort (outputs) with the efforts and results of others (referents). Each of these is defined below
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- Inputs - This includes any contribution that an individual makes toward an organized activity. This can include specialized knowledge, experience, tenure at the organization, number of hours, forgone opportunities, task prioritization, etc.
- Outputs - These are the rewards received as a result of the input. This can include compensation, title, recognition, autonomy, etc.
- Referent - The referent may be a specific person or a category of people. The important point is that the referent is comparable to the individual employees situation - such as those with similar positions, titles, roles, etc.
It is important to understand that the perceptions regarding inputs and outputs are subjective. They may be based in reality or a result of misunderstanding or bias.
If we believe that our ratio of input to output does not align with or equal the input to output ratio of others, then it is not fair. Perceptions of inequity drive actions to reduce inequity.
Individual Reactions
The Equity Theory identifies numerous potential reactions to the perceived inequity.
- Distort Perceptions - Look at the situation differently to justify the inequity in the input/output ratio.
- Increase Inputs - This could mean working harder, gaining more skills, etc.
- Reduce Inputs - This could mean working less or reducing the quality of the work.
- Increasing Outputs - This can include negotiating more compensation, responsibility, title, recognition, autonomy, etc.
- Change Referent - This involves changing to whom you compare yourself.
- Leave the Situation - This generally means quitting the job.
- Seek Legal Action - Pursue a legal action for an identified form of discrimination based upon being in a protected class of individuals.
An interesting aspect of equity theory is that the same reactions are not generally present when an individual feels that they are over-rewarded (more output) than is otherwise deserved or warranted based upon the input. In summary, people just do not react negatively to being overcompensated.
Imagine if an employee discovered that their colleague with the same job description, working the same hours, and putting in the same amount of work earned 10% more. Would you expect them to start putting in less effort or looking for another job?
That’s what Adams’ Equity Theory tells us is likely to happen. Read on to discover the basic principles of equity theory, how to implement its lessons, and how HR and management can support the theory in practice.
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What Is The Equity Theory Of Motivation?
Equity theory seeks to describe and understand why the beliefs of employees concerning what is right, fair, and just in the workplace matter for organizational performance. It was developed by John Stacey Adams in the 1960s.
Essentially, Adams’ Equity Theory states that people are motivated to put in a fair amount of work based on two factors:
- Their pay (which must be equitable in the first place)
- Their perception of how well they are paid compared with others
That’s the crucial part: Equity, in this case, is based on perception and not reality!
What Are The Basic Principles Of Equity Theory?
The basic principles of equity theory boil down to how employees compare themselves with others in terms of two things: input (effort) and outcomes (rewards).
Adams’ theory is that people try to balance what they put into the working relationship (in terms of time, effort, and various other factors) with what they get out of it – both consciously and unconsciously.
Let’s break each down…
Inputs: Contributions & Efforts
Employees contribute to their employment by providing knowledge, skill, experience, and a certain amount of time, but that’s not all. Every employee also contributes intangible factors to the organization like loyalty, commitment, and dedication.
Some employees may put more effort in, have a more or less positive attitude to work, and are more or less enthusiastic. In some cases, their contributions are self-determined: They’re just like that. But every employee can vary the level of input they choose to make.
A lot of what determines how much effort they put in comes down to their perception of whether the organization recognizes their efforts and contributions – over and above their pay.
Outputs: Inducements & Rewards
Traditionally, both employees and organizations alike, have measured employee success, and rewarded employees by providing more money. That’s fair enough. Financial rewards including salary, benefits, and perks, massively influence how much effort an employee puts in.
But, as any great HR leader and almost all inspirational managers know: An employee gets more out of doing a job than just being paid a salary – at least, they should.
Employees also get job security, responsibility, stimulus, and acknowledgment of status from the job they do.
Other non-tangible rewards include:
- Recognition
- Praise
- A sense of achievement
- A boost to their reputation
- A sense of advancement or growth.
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Why Does Equity Theory Matter In The Workplace?
It matters because equity theory illustrates the balance between how employees feel about their work, and how hard they should work as a result.
In the workplace, the first place where can test this surrounds fair pay.
Employers have a responsibility to pay employees fairly. It’s not just the right thing to do. In the UK, it’s mandated by law.
The Equality Act 2010 gives both women and men the right to equal pay for equal work. As the CIPD explains, both women and men are ”legally entitled to be paid at the same rate for like work, work rated as equivalent, and work of equal value.”
The second test is that employees must feel like the rewards they receive (relative to their contributions) are similar to those received by their peers.
The Link Between Equity Theory And Motivation
It’s important to keep employees motivated. This has long been documented, both in theory and in practice. But why is it important? And what does this have to do with Equity Theory?
In an HR context, the more we understand about what motivates employees, the more we can do to attract and retain great employees, making our workplaces productive places to be.
Fairness, or equity, and – more importantly – the perception of fairness – fundamentally impacts employee motivation.
John Crowley explains, “It’s important to note that this is nothing to do with whether you are or are not paying them fairly. It’s about whether or not they feel they are being paid fairly. It’s a matter of perception.”
What Happens When Equity Theory Goes Wrong?
When employees perceive that the balance between input and output (or between what they contribute, and the rewards they receive) is out of alignment, their behavior changes.
According to the theory, when employees think their work situation is unfair, they (consciously or unconsciously) do what they can to return it to a state of fairness.
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How Can Equity Theory Be Used At Work?
HR has the opportunity to implement equity theory by ensuring equal pay for people doing the same job, operating at the same level in an organization, and, in circumstances where the business decides it’s appropriate, even publishing the salaries of their senior executives.
They can also ensure that employees are clear about what behaviors are expected for certain levels (and pay brackets), and what they need to do in order to exceed expectations.
It may also be important for your People Team to take note of employees who are behaving as if things are unfair. This may be because they perceive that their psychological contract has been violated.
Typical Behavior Of Underpaid Employees
Underpaid employees are not provided with extrinsic/external motivation in the form of money. Under normal circumstances, they may be okay with the status quo or, perhaps, even find intrinsic motivation to do their job well, or gain enjoyment from it.
Here are some key ways to help boost employee motivation for HR teams.
However, when Adams’ Equity Theory is violated, bad things happen.
Employees who perceive they are underpaid may:
- Feel de-motivated about their job or their employer
- Go into survival mode (doing ‘just their job’, but nothing else)
- Be unhappy
- Put less effort in during working hours
- Work fewer hours (start later, end earlier, or take more frequent or longer breaks)
- Behave negatively
- Push for more money
- ‘Act out’ – for example, by being disruptive, causing trouble, or just generally making life more difficult for people around them
- Become overly competitive
- Quit.
Typical Behavior Of Overpaid Employees
Employees who are overpaid may feel shame, guilt, or that they just ‘got lucky.’
Employees who perceive they are overpaid may:
- Increase efforts beyond realistic expectations to justify their salaries (which might lead to working long hours, and result in exhaustion, or even burnout)
- Unconsciously adjust their perspective on what’s fair, in a process known as cognitive distortion.
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How Can HR Support Equity Theory?
HR has a responsibility to ensure that employees are reimbursed fairly. But it’s also important to create a sense of fairness within teams. Fairly-treated employees are more likely to be motivated, engaged, and perform well.
Here, transparency can also play a key role. When employees don’t know what’s happening, or why, they tend to draw their own (often incorrect) conclusions. Generally, the more informed people are, the better they will work. HR teams should aim to share as much as possible.
Finally, HR can support Equity Theory in practice by making sure the organizational culture is fair. Celebrate examples of fairness and tell stories explaining why fairness is important to your organization and what you do to promote it (or redress issues of unfairness).