What are the possible actions by employees that perceive an equity between their inputs and outcomes?

• Gartner client? Log in for personalized search results.

Equity Theory

Equity theory is a theory of motivation that suggests that employee motivation at work is driven largely by their sense of fairness. Employees create a mental ledger of the inputs and outcomes of their job and then use this ledger to compare the ratio of their inputs and outputs to others. Inputs may include effort, performance, skills, education, and experience; outcomes generally refer to pay, benefits and promotions. If employees perceive that their ratio of inputs to outcome is not equitable with that of their peers, they may become demotivated and dissatisfied with their job.

Download the CHRO Guide to reinvent your EVP

As an example of Equity Theory, if an employee learns that a peer doing exactly the same job as him is earning more money, he may choose to do less work, thus feeling justified in his own eyes.

By Vidya Hattangadi

Adams’ Equity Theory, also known as the Equity Theory of Motivation, was developed in 1963 by John Stacey Adams, a Belgian psychologist known for workplace behaviour. When people exhibit inappropriate behaviour at the workplace, everyone suffers. For instance, if someone frequently tells lies, his/her disruptive behaviour affects co-workers’ morale and productivity. Equity Theory is based on the idea that individuals are motivated by justice. In simple terms, Equity Theory states that if an individual identifies inequity between himself and a peer, he automatically will adjust his working style to make the situation fair in his own eyes. As an example of Equity Theory, if an employee learns that a peer doing exactly the same job as him is earning more money, he may choose to do less work, thus feeling justified in his own eyes.

Equity Theory focuses on influencing whether the distribution of resources is fair to both relational partners—employer and employee. Equity is measured by comparing the ratio of contributions in terms of costs and benefits in terms of rewards for each person. This theory is also considered as one of justice theories. John Adams asserted that employees seek to maintain equity between the inputs they bring to a job and the outcomes they receive from it against the professed inputs and compare them to the outcomes of others. According to Equity Theory, organisations must maximise individuals’ rewards, by creating systems where resources can be fairly divided amongst members of a team. If employees feel they are treated unequally in treatment and rewards, they will shy away from giving the best inputs.

The structure of equity at the workplace is based on the ratio of inputs to outcomes. Inputs are the contributions made by the employee for the organisation. Inputs, for instance, come in form of the number of hours worked (effort), the commitment and enthusiasm shown, the experience brought to the role, personal sacrifices made, and responsibilities and duties of the individual in the role. Outputs are the result an individual receives as a result of his inputs to the organisation. Some of these benefits will be tangible, such as salary, while others will be intangible, such as recognition. Common outputs include salary, bonus, pension, annual holiday allowance, company car, company home, stock options, recognition and promotion.

It’s a universal truth that company cultures are strongly interrelated with employee happiness. The more appealing and enjoyable an organisation’s culture is, the happier its employees will be. It is not possible for workers to be engaged when they are unhappy. Employees keep comparing with each other with regards to salary, perks, recognition and promotion. By cultivating a strong corporate culture, organisations increase the chances of good employee engagement. And engaged employees are more likely to be great advocates of the organisation brand. When organisations maintain rational inputs and outputs, they get clarity in defining equity. Equity is defined as an individual’s outputs divided by that same person’s inputs. Adam’s Equity Theory goes a step further and states that individuals look around and compare their promotions and perks to others. If they perceive inequity, then they will adjust their inputs to restore balance.
The airline industry is often mocked for grumpy employees and poor customer service, but Southwest Airlines of the US bucks those trends. Customers loyal to Southwest often point to happy and friendly employees who try hard to help. This airline has managed to communicate its goals and vision to employees in a way that makes them a part of a unified team. Southwest gives employees ‘permission’ to go the extra mile to make customers happy, empowering them to do what they need to do to meet that vision. Employees who are convinced of a larger common goal are people who are excited to be part of a larger purpose.

Adobe is a company that goes out of its way to give employees challenging projects and then provide the trust and support to help them meet those challenges successfully. While it offers benefits and perks like any modern creative company, Adobe’s is a culture that avoids micromanaging in favour of trusting employees to do their best. Adobe does not use ratings to establish employee capabilities, feeling that it restrains creativity and harms how teams work. Managers take on the role of a coach/mentor, more than anything, letting employees set goals and determine how they should be assessed. Adobe gives its employees stock options so they respect both a stake and reward in the company’s success. Continual training and culture that promotes risk-taking without the fear of penalty are part of Adobe’s open company culture. Putting trust in employees goes a long way towards positive organisational culture, because trust leads to independent employees who help their company grow.

Employees who are high in equity sensitivity place more importance on inputs in terms of what they can give in a situation; higher scorers have been labelled ‘benevolent’. In contrast, those who score towards the low end of the pole on equity sensitivity place greater importance on outcomes; they value what they can get in a given situation and are labelled as ‘entitled’. Towards the midpoint are those individuals who adhere more closely to the originally proposed norm of equity—i.e. those who desire their inputs and outcomes to be balanced, and they are labelled as ‘equity sensitive’. In sum, along the range, individuals who score high on equity sensitivity lean more towards benevolence, whereas individuals who score low on equity sensitivity lean more towards entitled.

The author is a management thinker and blogger

What are some possible consequences of employees perceiving an inequity between their inputs and outcomes and those of others?

What is equity theory and how do employees respond to inequity?

How employees might reduce perceived inequity?

How employees response to inequity in the organization explain with an example?