Equity Theory

Imagine that you are paid $10 an hour working as an office assistant. You have held this job for 6

months. You are very good at what you do, you come up with creative ways to make things easier

around you, and you are a good colleague who is willing to help others. You stay late when necessary

and are flexible if requested to change hours. Now imagine that you found out they are hiring

another employee who is going to work with you, who will hold the same job title, and who will

perform the same type of tasks. This particular person has more advanced computer skills, but it is

unclear whether these will be used on the job. The starting pay for this person will be $14 an hour.

How would you feel? Would you be as motivated as before, going above and beyond your duties?

How would you describe what you would be feeling?

Figure 5.7

Equity is determined by comparing one’s input-outcome ratio with the input-outcome ratio of
a referent. When the two ratios are equal, equity exists.

Source: Based on Adams, J. S. (1965). Inequity in social exchange. In L. Berkowitz

Press.
If your reaction to this scenario is along the lines of “this would be unfair,” your behavior may be

explained using equity theory.Adams, J. S. (1965). Inequity in social exchange. In L. Berkowitz

(Ed.), Advances in experimental social psychology (Vol. 2, pp. 267–299). New York: Academic

Press. According to this theory, individuals are motivated by a sense of fairness in their interactions.

Moreover, our sense of fairness is a result of the social comparisons we make. Specifically, we

compare our inputs and outcomes with other people’s inputs and outcomes. We perceive fairness if

we believe that the input-to-outcome ratio we are bringing into the situation is similar to the input-

to-outcome ratio of a comparison person, or a referent. Perceptions of inequity create tension within

us and drive us to action that will reduce perceived inequity.

What Are Inputs and Outcomes?

Inputs are the contributions people feel they are making to the environment. In the
previous example, the person’s hard work; loyalty to the organization; amount of time
with the organization; and level of education, training, and skills may have been relevant
inputs. Outcomes are the perceived rewards someone can receive from the situation. For
the hourly wage employee in our example, the $10 an hour pay rate was a core outcome.
There may also be other, more peripheral outcomes, such as acknowledgment or
preferential treatment from a manager. In the prior example, however, the person may
reason as follows: I have been working here for 6 months. I am loyal, and I perform well
(inputs). I am paid $10 an hour for this (outcomes). The new person does not have any
experience here (referent’s inputs) but will be paid $14 an hour. This situation is unfair.

We should emphasize that equity perceptions develop as a result of a subjective process.

The referent other may be a specific person as well as a category of people. Referents
should be comparable to us—otherwise the comparison is not meaningful. It would be
pointless for a student worker to compare himself to the CEO of the company, given the
differences in the nature of inputs and outcomes. Instead, individuals may compare
themselves to someone performing similar tasks within the same organization or, in the
case of a CEO, a different organization.

Reactions to Unfairness

The theory outlines several potential reactions to perceived inequity. Oftentimes, the
situation may be dealt with perceptually by altering our perceptions of our own or the
referent’s inputs and outcomes. [ (I don’t really work very hard on this job), valuing our
outcomes more highly (I am gaining valuable work experience, so the situation is not
that bad), distorting the other person’s inputs (the new hire really is more competent
than I am and deserves to be paid more), or distorting the other person’s outcomes (she
gets $14 an hour but will have to work with a lousy manager, so the situation is not
unfair). Another option would be to have the referent increase inputs. If the other
person brings more to the situation, getting more out of the situation would be fair. If
that person can be made to work harder or work on more complicated tasks, equity
would be achieved. The person experiencing a perceived inequity may also reduce
inputs or attempt to increase outcomes. If the lower paid person puts forth less effort,
the perceived inequity would be reduced. Research shows that people who perceive
inequity reduce their work performance or reduce the quality of their inputs. Carrell, M.
R., & Dittrich, J. E. (1978). Equity theory: The recent literature, methodological
considerations, and new directions. Academy of Management Review, 3, 202–210;
Goodman, P. S., & Friedman, A. (1971). An examination of Adams’ theory of
inequity. Administrative Science Quarterly, 16, 271–288. Increasing one’s outcomes
can be achieved through legitimate means such as negotiating a pay raise. At the same
time, research shows that those feeling inequity sometimes resort to stealing to balance
the scales.Greenberg, J. (1993). Stealing in the name of justice: Informational and
interpersonal moderators of theft reactions to underpayment inequity. Organizational
Behavior and Human Decision Processes, 54, 81–103. Other options include changing
the comparison person (e.g., others doing similar work in different organizations are
paid only minimum wage) and leaving the situation by quitting.Schmidt, D. R., &
Marwell, G. (1972). Withdrawal and reward reallocation as responses to
inequity. Journal of Experimental Social Psychology, 8, 207–211. Sometimes it may be
necessary to consider taking legal action as a potential outcome of perceived inequity.
For example, if an employee finds out the main reason behind a pay gap is gender
related, the person may react to the situation by taking legal action because sex
discrimination in pay is illegal in the United States.

Table 5.1 Potential Responses to Inequity

Reactions to
Example
inequity
Changing one’s thinking to believe that the referent actually is more skilled than
Distort perceptions
previously thought
Increase referent’s
Encouraging the referent to work harder
inputs
Reduce own input Deliberately putting forth less effort at work. Reducing the quality of one’s work
Increase own Negotiating a raise for oneself or using unethical ways of increasing rewards
outcomes such as stealing from the company
Change referent Comparing oneself to someone who is worse off
Leave the situation Quitting one’s job
Suing the company or filing a complaint if the unfairness in question is under
Seek legal action
legal protection