Motivated by Equity
Equity theory attempts to explain relational satisfaction in terms of perceptions of fair or unfair distributions of resources within interpersonal relationships. Regarded as one of many theories of justice, equity theory was first developed in 1963 by John Stacey Adams. Adams, a workplace and behavioral psychologist, asserted that employees seek to maintain equity between what they put into a job and what they receive from it against the perceived inputs and outcomes of others.
Equity theory posits that people value fair treatment, which motivates them to maintain a similar standard of fairness with their co-workers and the organization. According to the theory, equity structure in the workplace is based on the ratio of inputs (employee contributions) to outcomes (salary and other rewards).
Imbalances
Equity theory proposes that individuals who perceive themselves as either under-rewarded or over-rewarded will experience distress, and that this distress leads to efforts to restore equity within the relationship. Equity theory focuses on determining whether the distribution of resources is fair to both relational partners. Equity is measured by comparing the ratios of contributions and benefits of each person within the relationship. Partners do not have to receive equal benefits (such as receiving the same amount of love, care, and financial security) or make equal contributions (such as investing the same amount of effort, time, and financial resources), as long as the ratio between these benefits and contributions is similar.
Much like other prevalent theories of motivation, such as Maslow's hierarchy of needs, equity theory acknowledges that subtle and variable individual factors affect individuals' assessment and perception of their relationship with their relational partners. According to Adams, underpayment inequity induces anger, while overpayment induces guilt. Compensation, whether hourly or salaried, is a central concern for employees and therefore the cause of equity or inequity in most, but not all, cases.
The Employee/Organization Relationship
In any position, employees wants to feel that their contributions and work performance are being rewarded with fair pay. An employee who feels underpaid may experience feelings of hostility towards the organization and perhaps co-workers. This hostility may lead to the employee under-performing and could cause job dissatisfaction in others.
Subtle or intangible compensation also plays an important role in feelings about equity. Receiving recognition for strong job performance and being thanked can create employee satisfaction, and therefore help the employee feel worthwhile, resulting in better outcomes for both the individual and the organization.
When individuals find themselves participating in inequitable relationships, they become distressed. The more inequitable the relationship, the more distress individuals feel.
The Role of Management
Depending upon the organizational structure and its distribution of authority, the decision to provide monetary compensation for a strong work deliverable is not always in the hands of an employee's direct manager. As a result, managers must monitor their direct reports' earnings, discuss this with their superiors, assess efficacy, and provide intangible rewards (such as recommendations, gratitude, authority, new projects, etc.). Creating and maintaining equity is a responsibility of all managers.