Equity Theory

Fundamentals

Equity theory is a concept focused on the reasons why the outcomes of a social exchange might be perceived as unfair because of a lack of correspondence with the inputs to that exchange. Additionally, the theory shows different ways that people might respond when they perceive that lack of correspondence. The lack of correspondence is considered to be unpleasant and hence the source of motivation to be rid of that unpleasantness—to reduce feelings of inequity. The ways to reduce inequity involve bringing outcomes and inputs back into correspondence by making changes to the outcomes or to the inputs or to both. These can be changes in mere perceptions rather than in the actual outcomes and inputs themselves.

An employee’s perceived inputs might include his or her merit and effort as well as skill, training, education, experience, or seniority. With regard to employees who feel inequitably treated, the relevant inputs are whatever they believe the employer ought to compensate: the perceived contributions to the exchange, for which a fair return is expected. Job-related outcomes, therefore, are the kinds of things that employees perceive should be granted in return for what they have contributed to the organization (e.g., salary, bonuses, promotions, benefits, status). This conceptualization stresses that the sense of inequity is a subjective experience based on one’s own perceptions. Fairness, like beauty, is in the eye of the beholder.

John Stacey Adams referred to the perceived fairness of outcomes in terms of three possibilities: equity, disadvantageous inequity, and advantageous [Page 250]inequity. Colloquially, the latter two might be called underpay and overpay. Adams noted how the nature of specific comparisons could affect these. A person making $70,000 per year might feel good about that amount in comparison with someone earning only $20,000 annually, for example, and yet the same person might have an unfavorable reaction if the comparison were to someone earning $200,000 annually.

Consider those salaries on an amount-per-annum basis as not unlike the annual return-on-investment from a mutual fund. What makes for a good return on investment? Suppose you could expect to get a 5% return from mutual fund A ($120 as the outcome for every $100 input). That’s “advantageous” relative to a 2% return from mutual fund B but “disadvantageous” relative to a 10% return from mutual fund C. Adams reasoned that comparisons of outcome/input ratios also formed the basis for perceived inequity, whether in its disadvantageous or advantageous form.

If the set of outcomes and inputs designated by A related equitably to those of B, an outcome/input algebraic equivalence is Oa/Ia = Ob/Ib. Similarly, disadvantageous inequity is Oa/Ia < Ob/Ib, and advantageous inequity is Oa/Ia > Ob/Ib. Based on the algebra of ratios, A and B might exist in an equitable relation with A as 4/1 and B as 4/1 (identical terms as exact equality) or with A as 800/4 and B as 400/2 (equivalence rather than the equality of every term) and so on—such as if the numerator were dollars and the denominator were days worked (e.g., A got $800 for 4 days’ work, and B got $400 for 2 days’ work). By the same token, A with an outcome/input ratio of 20/5 would be in a state of advantageous inequity relative to 15/5 for B; the same 20/5 would create a disadvantageous inequity in A’s situation, however, if B’s outcome/input ratios were 40/5 or 16/2 and so on.

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