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Leadership Organizational Psychology

Equity theory and motivation

How is it that an employee making $60,000 a year is less satisfied with his pay and less motivated than his colleague earning $30,000? You won’t believe me, but psychological research from the 1960s indicates that organizational justice principles might help us understand this contrast in motivations.

But I want to shed light on equity theory, which was the predecessor to the organizational justice theory developed by workplace and behavioral psychologist, J. Stacy Adams. He asserted: 

Employees seek to maintain equity between the inputs they bring to a job and the outcomes they receive from it against others’ perceived inputs and outcomes.

Adams, 1963

According to Equity theory, employees compare what they get from their jobs (outcomes) such as pay, promotions, recognition, perks, and fringe benefits to what they put into it (inputs) like effort, experience, education, and knowledge. They evaluate the ratio of their outcomes to their inputs and compare it with their colleagues, coworkers, or someone outside of their organizations doing the same type of work. And if, in their analysis, the ratio between themselves and others is equal, they consider their situation fair. Otherwise, it is unfair, unjust, and hence inequitable. And of course, that impacts their overall motivation, productivity, and their perspective about the employer. 

Based on Equity theory, employees who perceive unfairness make one of the following six choices (Essentials of Organizational Behavior, 13e, Robbins, and Judge) :

  1. Change their inputs by exerting less effort, if underpaid, or more if overpaid. 
  2. Change their outcomes; for example, individuals paid on a piece-rate (or per-hour) basis can increase their pay by producing a higher quantity of units (or investing a whole lot of hours) of lower quality. 
  3. Distort perceptions of themselves by assuming they’re working way harder than they had realized and more than anyone else!
  4. Distort perceptions of others by underestimating what they do, or their job entails. 
  5. Choose a different point of reference to rationalize the situation. For example, “I might not be making as much as my best friend, by I’m doing a whole lot better than my dad at my age.” 
  6. Leave the field of quit the job. 

Of course, these choices aren’t accurate. You can’t expect an overpaid employee to feel they have to work more. That rarely (never, actually) happens. They might feel their experience and education makes their output a whole lot valuable than everyone else! And that could be a fair argument. 

Anyway, the point is that the above is inaccurate predictions. Still, they are pretty fair indicators of what might happen when people begin to evaluate the ratio of their outcomes with others. It’s helpful to understand this because it forms the basis of employees’ perception of fairness. Heck, equity theory gave birth to the whole concept of organizational justice, which explores how authorities and decision-makers treat employees.