Equity Theory: Definition, Origins, Components and Examples

In any managerial role, understanding what drives employee motivation is crucial for success. Equity theory offers valuable insights into this aspect, focusing on how perceptions of fairness can significantly impact workplace enthusiasm and efficiency. This article delves into the history, fundamental principles, and components that make up this important theory. It also provides actionable strategies for managers to maintain a balanced and motivated workforce by applying equity theory.

What is the equity theory of motivation?

Equity theory is central to understanding how employees’ motivation in the workplace is influenced by their perception of fairness. According to this theory, employees maintain a mental record, akin to a ‘ledger,’ that keeps track of what they contribute to their job and what they receive in return. These contributions or ‘inputs‘ could range from the amount of effort they put into tasks, their skill level, educational background, and overall work experience. In contrast, ‘outputs‘ or rewards can include things like salary, additional benefits, and opportunities for career advancement (1).

When it comes to gauging their level of motivation and job satisfaction, employees often compare their own input-output balance to that of their co-workers. If an employee feels that this balance is skewed in comparison to others, there’s a high chance they’ll become less enthusiastic and content with their job role. This could, in turn, affect their performance and overall productivity.

However, if an employee thinks that their contributions and rewards are on par or better than their colleagues, they are likely to feel a higher sense of motivation and job satisfaction. This insight, grounded in equity theory, can be a useful tool for managers and business owners to ensure a motivated and content workforce.

A figure showing Inputs and Outcomes — Equity Theory: Inputs should balance with outcomes

The origins of equity theory

Equity theory came into prominence in 1963 through the work of John Stacey Adams, a behavioural and workplace psychologist. The theory aims to provide insights into relational satisfaction based on the concept of perceived fairness. Adams developed this theory as a way to fill a noticeable gap in the psychological understanding of how individuals perceive inequities, a concern that has been particularly significant for employers and governmental bodies, as it directly influences employee attitudes and behaviours towards their organisations (2).

A photo of John Adams — John Adams – Credit: University of Minnesota

Drawing on pre-existing research in both sociology and psychology, Adams reasoned that the concept of equity goes beyond the simple economic measurements of being overpaid or underpaid. Instead, it involves intricate cognitive and psychological processes that are influenced by social context. This means that the assessment of what is deemed ‘fair‘ or ‘unfair‘ is socially constructed and is more nuanced than straightforward financial calculations.

The significance of equity theory is two-fold. On an organisational level, understanding these principles can help mitigate financial repercussions that arise from negative employee behaviour, such as decreased productivity or higher turnover rates. Concurrently, the theory holds broader social importance, as it offers a framework for promoting fairness and justice in interpersonal interactions and relationships. By doing so, it aims to guide the regulation of both organisational outcomes and social justice (3).

Theoretical Foundations

As mentioned, Equity Theory is a construct that draws its foundational principles from three key theories within the realms of social science and psychology.

Social Exchange Theory

The Social Exchange Theory serves as one pillar, suggesting that the essence of social interactions is based on individual assessments of the pros and cons associated with a given relationship. It maintains that people remain in relationships as long as they perceive the benefits to outweigh the costs.

Social Comparison Theory

Another cornerstone is the Social Comparison Theory. This theory details the cognitive processes people employ to gauge whether the distribution of rewards and penalties in a relationship is equitable. It was incorporated into Equity Theory based on earlier evidence which revealed that employees tend to perceive a distribution of rewards as unfair if they find that their contributions surpass those of their peers within the same organisational division.

Cognitive Dissonance Theory

Lastly, the Cognitive Dissonance Theory plays an instrumental role in understanding how individuals cope with the emotional turmoil triggered by incongruent beliefs or cognitions. This theory further clarifies how people are motivated to relieve this tension either through passive acceptance or proactive steps to alter the situation.

By synthesising elements from these three core theories, Equity Theory offers a holistic explanation that encompasses the nature of human relationships, the cognitive evaluation mechanisms at play, and the ensuing emotional and behavioural reactions to these evaluations. This combination allows for the development of strategies to manage interpersonal relationships effectively, both within and outside organisational settings (4).

Components of the equity theory of motivation

The equity theory of motivation fundamentally rests on two core concepts: the effort a person invests, often called ‘inputs’, and the rewards a person receives, known as ‘outcomes’. These two components play a critical role in shaping an employee’s level of motivation.

Inputs

Inputs, they can be broadly defined as the contributions an individual makes to secure some form of reward. This can range from the hours spent working and the responsibilities taken on, to the level of loyalty exhibited toward an organisation and the overall enthusiasm for the job at hand. Employees often make a distinction between elements they can control, such as punctuality and communication skills, and those that are beyond their control, like the level of training provided by the employer or their years of service in the company.

Outcomes – Outputs

Outcomes are the compensations or benefits received in exchange for these contributions. Sometimes these rewards can be easily quantifiable, like a paycheck, job stability, or fringe benefits like healthcare packages and time off. However, not all outcomes can be measured in concrete terms. Some are more elusive but equally significant, like gaining respect from colleagues, building a solid professional reputation, or deriving a sense of satisfaction and pride from your own work.

It’s essential that the worth assigned to the outcomes should, in an ideal world, mirror the significance of the inputs. For example, someone who has invested in higher education might anticipate that their advanced qualifications will lead to superior job prospects.

Factors that affect equity theory

The concept of equity theory incorporates two key elements known as ‘referents’ and ‘moderating variables’. These components can shape how a worker views fairness.

Referent groups

In the workplace, employees tend to form judgments about the fairness of their treatment by drawing up a range of comparisons, often referred to as referent groups. These referent groups come in four distinct categories.

Self-inside: An employee may use a ‘Self-inside’ benchmark, drawing on their own previous experiences within the same organisation.
Self-outside: the ‘Self-outside’ referent is used when an employee compares their current situation with their own experiences in other organisations.
Other-inside: An employee might employ the ‘Other-inside’ referent, where they assess their own inputs and outcomes against those of another colleague within the same company.
Other-outside: Lastly, the ‘Other-outside’ referent involves measuring one’s own situation against that of individuals in comparable positions but in different organisations.

By employing one or more of these referent types, either consciously or unconsciously, employees form a nuanced view of how equitably they are being treated. For example, an individual who previously felt underappreciated at another company might find themselves more acknowledged in their current role. In this instance, they are likely to use a ‘Self-outside’ comparison, leading them to the conclusion that they are currently in a more equitable employment situation. This understanding not only informs the employee but also offers actionable insights for management to maintain a balanced and motivating work environment (5).

Moderating variables

Moderating variables like educational background and years of experience play a crucial role in shaping an employee’s view of fairness in their work setting. For instance, individuals with advanced education are often inclined to draw upon their broader industry network when making comparisons about fairness, looking beyond their current organisation. Conversely, those who have built up a longer tenure either in their role or within the same company tend to use internal benchmarks or colleague comparisons as their measure for fairness. Employees with less experience, however, are likely to rely on their own personal knowledge and understanding when assessing what is fair.

Five Key Principles

Now that we have looked at the main components of Equity Theory, let’s examine the five key principles that explain the dynamics of equity in interpersonal relations:

According to the theory, human interactions operate on an equity norm, meaning people inherently seek a fair exchange where their contributions are adequately rewarded. Within a collective setting, this principle implies that group members who abide by this equity norm are positively reinforced, while those violating it face consequences.
The second principle revolves around the mechanism for assessing equity, which involves comparing one’s own contributions and benefits to those of another individual. People may either compare themselves to a specific individual, or to a broader societal measurement, which could include universally accepted standards or pre-established social norms. A person may even use their own past experiences as a point of reference to evaluate current rewards and contributions.
Thirdly, the theory addresses the conditions under which perceptions of inequity arise. For example, in a work setting, if employees perceive a disconnect between their professional credentials, like education and responsibilities, and the rewards they receive, such as pay or job security, they will likely experience a sense of inequity, especially when comparing their gains to what they believe others are receiving.
The fourth key principle illustrates that perceptions of inequity can result in psychological dissonance that may manifest as emotional distress. The disparity between one’s own outcomes and that of another can evoke negative emotions like anger when the individual perceives they are receiving less, or guilt when they feel they are getting more than their due. This emotional dissonance is amplified depending on the level of perceived inequity and is not limited to professional settings but also extends to familial and other personal relationships.
Lastly, the fifth principle posits that individuals will naturally attempt to restore a sense of equity to relieve the emotional strain caused by perceived inequity. The theory enumerates seven distinct coping strategies, ranging from actively altering the distribution of rewards and contributions to more psychological approaches like altering one’s own perception of the situation. These strategies offer a blueprint for individuals to navigate the complexities of equity, whether in a work environment or in personal relations (6).

By understanding these five foundational principles, it is possible to better grasp the intricate complexities of equity and inequity in various relational contexts, and thereby gain insights into managing interpersonal dynamics more effectively.

How to apply the equity theory of motivation in the workplace

Understanding your team’s motivation is crucial, and the framework provided by Equity Theory can be quite enlightening. To implement this theory effectively in your workplace, consider these three core strategies:

Establish fairness: If you are in a position of seniority, one of your first priorities should be to set up a fair reward system. Make it a point to offer equal rewards for equal amounts of work. Regular team meetings can be a good venue to make sure everyone feels recognised for their contributions.
Benchmark compensation: Salary is often at the heart of how team members judge their treatment at work. To keep your team satisfied, align your compensation packages with the market standards. Doing a bit of market research, for example, by looking at online databases to check competitive salaries, can arm you with the necessary information for defining appropriate compensation levels.
Understand individual preferences and emotional states: Different team members are motivated by different things. Some may put a higher value on monetary rewards, while others might be more motivated by job satisfaction or opportunities for growth. Personalised discussions can offer you a clear idea of what each team member values most, allowing you to formulate a plan that keeps everyone engaged and satisfied. Similarly, emotional factors can also come into play. If a team member feels under-rewarded, they may develop feelings of resentment that could lead to decreased performance. On the other hand, over-rewarding can cause guilt, affecting morale in a different way. Therefore, emotional considerations should not be underestimated when applying Equity Theory.

Conclusion

In summary, equity theory provides a comprehensive framework for understanding the complexities of motivation in the workplace. Rooted in decades of academic research, this theory explains how employees weigh their contributions against the rewards they receive, and how these perceptions influence their overall job satisfaction and productivity. Managers who make use of the insights offered by equity theory can create a more harmonious and effective work environment. By being aware of the individual needs and expectations of their team, they can create a work culture that not only values fairness but also promotes long-term engagement and success.

References

Adams, J.S. & Freedman, S. (1976). Equity Theory Revisited: Comments and Annotated Bibliography. Advances in Experimental Social Psychology, 43-90.
Adams, J.S. (1963). Towards an understanding of inequity. The Journal of Abnormal and Social Psychology, 67 (5), 422-436.
Chou, E., Lin, C. & Huang, H. (2016). Fairness and devotion go far: Integrating online justice and value co-creation in virtual communities. International Journal of Information Management, 36 (1), 60-72.
Lăzăroiu, G. (2015). Employee motivation and job performance. Linguistic and Philosophical Investigations, (14), 97-102.
Burgess, R. L., & Huston, T. L. (Eds.). (2013). Social exchange in developing relationships. Elsevier.
Greenberg, J., & Cohen, R. L. (Eds.). (2014). Equity and justice in social behavior. Academic Press.

Equity Theory: Definition, Origins, Components and Examples

What is the equity theory of motivation?

The origins of equity theory