Equity Theory

Breaking Down Adam’s Equity Theory

Equity Theory is principally an economic approach for individuals who tend to compare their job inputs and outputs with those of others. The theory was pioneered by John Stacey Adams, a behavioral psychologist. According to this theory, employees tend to judge fairness of their work situations by cognitively comparing their inputs to the organization with the outcomes they received in return and also by comparing the ratio to those of other people (Adams, 1965).

Inequity occurs when a person perceives that the ratio of his or her outcomes to inputs and the ratio of a relevant other’s outcomes to inputs are unequal. When there is equity, there is satisfaction. In this way, the employee feels to be treated fairly and is motivated to put in optimum performance and even reciprocates the organization by engaging in organizational citizenship behavior(s)Opens in new window.

In case the outcome is more than expected, one will increase input (to preserve self-esteem). If the outcome is less, one feels inequity and is motivated to take corrective action (which may even be harmful to organizations). These could be reducing input to match outcome or if that is not possible, resorting to absenteeism/turnover. Individuals, thus, perform a ‘cost-benefit analysis’. If estimated benefit justifies cost of more efforts, they develop a drive for action. This theory is useful in designing incentive/reward scheme.

J. Stacey Adams posits that an employee who perceives inequity in his or her rewards seeks to restore equity. The theory emphasizes equity in pay structure of employees’ remuneration. Employee’s perception of how they are being treated by their firm is of prime importance to them. The dictum ‘a fair day work for fair day pay’ denotes a sense of equity felt by employees. When employees perceive inequity, it can result in lower productivity, higher absenteeism or increase in turnover.

This theory traces the cause of employee’s satisfaction and dissatisfaction in the job to their perception of fairness or unfairness in the balance between their job efforts and job rewards. It is, therefore, necessary for the organization to develop a fair balance between the job efforts called input and the job rewards called output.

The individuals constantly verify own benefits in terms of:

Employees might compare themselves to friends, neighbors, colleagues at work and peers and known persons in similar organizations and more sources of information like print and electronic media, books and libraries and a host of websites.

It is seen that the equity theory, in contrast to internal needs theories of motivation, is noticeably concerned with the social processes that influence motivation and behavior. These are just a few of the facets of the equity theory and the theory has received good support through fact finding, evaluation and research.