Equity theory is based on the assumptions that a major factor in job motivation is the individual’s evaluation of the equity or fairness of the reward received. Equity can be defined a ratio between the individual’s job inputs (such as effort or skill) and job rewards (such as pay or promotion). According to equity theory, individuals are motivated when they experience satisfaction with what they receive from an effort in proportion to the effort they apply. People judge the equity of their rewards by comparing them either to the rewards others are receiving for similar input or to some other effort/reward ratio that occurs to them. An example will demonstrate the differences.
Suppose that you and a co-worker are booth assigned projects that involve developing a pricing strategy on a product. Your product is a new part of the organization’s product line and faces a complex competitive situation. Your co-worker’s product has been sold for ten years and has a track record regarding the relationship between sales and price levels. Your effort will probably need to be much greater than your co-worker’s given the relatively greater uncertainties that you’ll face in completing the task.
According to equity theory, you will factor in this difference in job inputs between the two of you in deciding if your reward is equitable. This is the first kind of equity comparison — comparison between people’s situations. On the other hand, if you in mind that working sixty hour weeks on projects like this should earn you compensating ‘time-off’ you are making the second kind of equity comparison – judging against some standard you prefer. In either case, equity theory joins need theory as another view of what satisfies or dissatisfies people.
Most discussion and research on equity theory focuses on money as the most significant reward in the workplace. People compare what they are being paid for their efforts with what others in similar situations receive for theirs. When they feel inequity exists, a state of tension develops within them, which they try to resolve by appropriately adjusting their behavior. A worker who perceives that he or she is being underpaid for example may try to reduce the inequity by exerting less effort.
Recent studies have shown that an individual’s reaction to an inequity is dependent on that person’s history of inequity. This is how time enters into motivation theory. Work relationships are not static and that inequities are not usually isolated or one time events. They suggest that there is a threshold up to which an individual will tolerate a series of unfair events, but that one too many incidents can push him or her over the edge. That is, a relatively minor injustice – the straw that breaks the camel’s back – pushes the individual beyond his or her limit of tolerance, and an extreme and seemingly inappropriate reaction will result. For example, an outstanding worker who is denied an afternoon off for no compelling reason may suddenly become enraged if he or she has experienced a string of similar petty decisions in the past.
People use different methods to reduce inequity. Some will rationalize that their efforts were greater or less than they originally perceived them to be, or that the rewards are more or less valuable. For example, one person failing to receive a promotion may ‘decide’ that the previously desired job actually involved too much responsibility. Others may try to make the co-workers with whom they are comparing themselves change their behavior. Work team members receiving the same pay but exerting less effort may be persuaded to work harder. High performing workers may be discouraged from ‘making’ the rest of us look bad. Equity theory suggests how very important it is that managers get to know their employees and recognize that jobs are done in the context of human relationships. Only then can they begin to appreciate the equity ‘calculations’ that their employees make.