What is equity theory.pdf

KMK 6053 : COGNITION AND ORGANIZATIONAL BEHAVIOUR

1. INTRODUCTION

A motivation is the force that energizes, directs and sustains behavior. High performance

is achieved by well motivated people who are prepared to exercise discretionary effort. And in

motivation for employees, we have equity theory which is one of the most popular motivation

theories in managing and motivating employee performance. In this assignment, we will know

more details about equity theory and how to use it to motivate employee performance as a

manager.

2. MOTIVATION THEORY: EQUITY THEORY

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 According to

www.whatishumanresource.com (n.a), 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). 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)


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.

3. EQUITY EQUATIONS

According to Rynes, Gerhart, and Minette (2004), equity theory predicts that an

individual is likely to change her/his behavior in one of several ways: expressing dissatisfaction

to her supervisor, working harder to get a bigger raise next year, working less to bring her/his

inputs in line with her perceived out-comes, or quitting in disgust.

While Walster (1975) define equity theory as an equitable relationship to exist when the

person scrutinizing the relationship concludes that all the participants / employees are receiving

equal relative gains from the relationship as follow:


Where I is inputs of employees, O is the total outcome / performance from the employees and K

is a computational device. Inputs (IA or 1B) are define as the scrutineers perception of the

employees contribution to the exchange, which are seen as entitling them to reward or

punishment (Hatfield & Traupmann , 1980). The inputs can that employees contribute can be

either assets, which entitle them to rewards, or liabilities which entitle them to punishment.

While outcomes (OA and OB are defined as the scrutineers perception of the reward and

punishments employees has received in the course of their relationship to another. The

employees total outcomes or performance then are equal to the rewards obtained from the

relationship minus the punishments that can be incurred. And for the exponents KA and KB take

on the value of +1 or -1 depending on the sign of A and Bs inputs and the signs of their gains

(outcomes inputs). If I and (I-O) are either positive (or both negative) KA or K8 = +1 otherwise

KA and KB = -1.

According to Rynes, Gerhart, and Minette (2004), the inputs and outcomes of equity

theory as follow:

Figure 1

Table above has showed us what inputs and outcomes are expected in equity theory. If an

individual or employee perceives any of them as an input then it is an input and hence he or she

expects a just return for it. The problem arises if only the employee views a particular input and

not the employer. In this case, felt injustice or dissatisfaction is experienced for example an

employer may base his promotion on seniority rather than promotion; that employee will feels

that injustice has been done (Adams, 1965).


4. THEORY CRITICS

But in this equity theory research, not all of the researchers believe in this theory. This theory

also has been criticized because it is oversimplified and based on prediction or laboratory rather

than real life research (Huseman, Hatfield, & Miles,1987). It also been suggested by Carrel and

Ditrich (1978) that equity can be perceived not only on a person-to-person basis, as the theory

posits, but also by reference to the fairness of processes in the organization as a whole. But the

need to equitable reward and employment practices which are supported by equity theory cannot

be questioned. To put these in simple words, the problem is how to achieve equity.

5. HOW TO MOTIVATE EMPLOYEES PERFORMANCE.

Now we do understand equity theory deeper and we are as the manager, supposed to use

it to motivate our employees performance. As a manager, we should know that People feel

affirmed if the procedures that are adopted treat them with respect and dignity, making it easier

to accept outcomes they do not like (Deutsch, 2000, p.45).

First, we must avoid underpaying and overpaying employees. They monitor performance

and compensation regularly to achieve a productive balance. If cuts need to be made due to

economic conditions, they distribute the decreases throughout the company. To remain

motivated, employees typically need to be able to provide input to their performance plan,

modify their goals if conditions change, and seek career development opportunities.

Second, clear communication. It's not easy to make equitable decisions while supporting

performance improvement. We as managers typically evaluate their employees, calibrate ratings

and decide on rewards. These rewards include pay increases, promotions, flexible work

schedules or stock options. Justifying these decisions becomes the focus, rather than relaying

constructive feedback that can enhance performance and foster career development. Successful

small-business managers clearly communicate company goals and make sure employees

understand their role in achieving business objectives. By recognizing the effort, loyalty,

commitment, skill and enthusiasm that an exemplary employee displays, an effective manager


acknowledges accomplishments, establishes trust and builds a productive workforce. A worker's

sense of achievement tends to build loyalty and enables him to feel secure about his future with

the company.

Next, we as manager should make setting expectations. According to equity theory, an

employee's perception of the fairness of his work's input and outcome influences his motivation.

Effective performance management systems enable a small-business manager to clarify job

responsibilities and expectations, develop an employee's capabilities, and align an employee's

behavior to the company's strategic goals and values. An employee typically feels satisfied with

the outcome of his effort, including his pay, when the compensation matches what he feels he

puts into the job. If an employee perceives that others get more for doing less, he typically

becomes less motivated to work hard. We as managers can create a productive work

environment by communicating job requirements clearly and establishing fair and consistent

performance objectives for all employees. Other than that, managers may need to manage

unrealistic expectations by more open and active communication. Other solutions may involve

acknowledging and addressing legitimate employee concerns. Finally, organizational managers

can lead change efforts thoughtfully to avoid generating employee resentment.

6. CONCLUSION

In conclusion, equity theory always has been used as one of the best tools in motivating

employees. The Culturally-Sensitive equity model can be used as a tool for international

managers who either have employees, customers, or suppliers in both the Western and Eastern

regions of the world. Through the use of this model, these managers can gain a global

understanding and have a true appreciation for the various inputs and outcomes that motivate

their employees based on orientation and cultural perspectives (Fadil, Williams, Limpaphayom,

and Smatt, 2005).

Equity in the workplace is so important is that employees need to feel that they have

some control over their future with their employer. An unfair system is one in which has a lack

of predictability, so that arbitrary decisions are made and employees fear victimization. Unfair


systems undermine the employees believe that efforts will result in valid outcomes. Managers

should be aware of the benefits of behaving toward subordinates in a manner perceived as fair.

Managers should be concerned with how they treat their employees because employees

perceptions of that treatment could affect the level of citizenship behavior. Also, their

understanding of equity theory and the different situations of under reward and over reward

reactions and how it would affect on the organization such as strikes, grievances, lowering

performance, theft, quitting and others.


7. APPENDICES:

Figure 2


Figure 3


Figure 4


Figure 5


REFERENCES :

Disley, Philip (01/01/2009). "Applying equity theory to staff working with individuals with

intellectual disabilities". Journal of intellectual & developmental disability (1366-8250), 34

(1), p. 55.

Fadil, P.A., Williams, R.J., Limpaphayom, W., & Smatt, C. (2005) Equity or equality? A

conceptual examination of the influence of individualism/collectivism on the cross-cultural

application of equity theory. Cross Cultural Management, 12 (4), 17-36.

Source: Boundless. Equity Theory. Boundless Business. Boundless, 02 Jul. 2014. Retrieved 21

Nov. 2014 from https://www.boundless.com/business/textbooks/boundless-business-

textbook/motivation-theories-and-applications-11/modern-views-on-motivation-76/equity-

theory-360-3209/

Hatfield, E., Bensman, L., & Rapson, R. L. (2011.) Equity Theory. In Daniel J. Christie (Ed.),

The Encyclopedia of peace psychology. New York: Wiley-Blackwell

Deutsch, Morton (2000) Justice and conflict. In M. Deutsch and P.T. Coleman (Eds.), The

Handbook of conflict resolution: Theory and practice , San Francisco: Jossey-Bass Inc.

Publishers.

Baxamusa, B. N. (2012, March 12). Equity theory of motivation. Retrieved February 13, 2014,

from http://www.buzzle.com/articles/equity-theory-of-motivation.html

Gogia, P. (2010). Equity thory of motivation. Retrieved from www.businesshub.com/equity-

theory-of-motivation/.

Huseman, R. C., Hatfield, J. D., & Miles, E. W. (1987). A new perspective on equity theory: The

equity sensitivity construct. The Academy of Management Review,12 (2), 222-234.

Hatfield, E. & Traupmann, J. (1980). Intimate relationships: A perspective from equity theory.

In S. Duck & R. Gilmour (Eds.), Personal relationships I: Studying personal relationships

(pp. 165-178). London: Academic Press.


Miles, E. W., Hatfield, J. D., & Huseman, R. C. (1994). Equity sensitivity and outcome

importance. Journal of Organizational Behavior, 15, 585-596.

Carrell, M. R. & Dittrich, J. E. (1978). Equity theory: The recent literature, methodological

considerations and new directions. The Academy of Management Review, 3(2), 202-209

Adams, John S. (1963).Towards an Understanding of Inequity. Journal of Abnormal and, Social

Psychology,67 (5), 422-436.

John Adam's Diagram. Retrieved from :

http://www.businessballs.com/images/adamsequitytheory.htm.http://www.businessballs.co

m/images/adamsequitytheory.htm

Documents

What is equity theory.pdf