Equity Theory

Equity Theory, also known as Adams' Equity Theory, attempts to explain relational satisfaction in terms of perceptions of fair/unfair distributions of resources within interpersonal relationships. It was first developed in 1963 by John Stacy Adams, a workplace and behavioral psychologist, who asserted that employees seek to maintain equity between the inputs that they bring to a job and the outcomes that they receive from it against the perceived inputs and outcomes of others (Adams, 1965).

Contents

* 1 Background

o 1.1 Definition of Equity

o 1.2 Inputs and Outcomes

+ 1.2.1 Inputs

+ 1.2.2 Outcomes

o 1.3 Propositions

* 2 Equity Theory in Business

o 2.1 Assumptions of Equity Theory Applied to Business

o 2.2 Implications for Managers

* 3 Criticisms and Related Theories

o 3.1 Equity Sensitivity Construct

o 3.2 Fairness Model

* 4 References

* 5 Literature

Background

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. It 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 each person's assessment and perception of their relationship with their relational partners (Guerrero et al, 2007).

Definition of Equity

An individual will consider that he is treated fairly if he perceives the ratio of his inputs to his outcomes to be equivalent to those around him. Thus, all else being equal, it would be acceptable for a more senior colleague to receive higher compensation, since the value of his experience (an input) is higher.

Inputs and Outcomes

Inputs

Inputs are defined as each participant's contributions to the relational exchange and are viewed as entitling him/her to rewards or costs. The inputs that a participant contributes to a relationship can be either assets Ð'- entitling him/her to rewards Ð'- or liabilities - entitling him/her to costs. The entitlement to rewards or costs ascribed to each input vary depending on the relational setting. In industrial settings, assets such as capital and manual labor are seen as "relevant inputs" Ð'- inputs that legitimately entitle the contributor to rewards. In social settings, assets such as physical beauty and kindness are generally seen as assets entitling the possessor to social rewards. Individual traits such as boorishness and cruelty are seen as liabilities entitling the possessor to costs (Walster, Traupmann & Walster, 1978). Inputs typically include any of the following:

* Time

* Effort

* Loyalty

* Hard Work

* Commitment

* Ability

* Adaptability

* Flexibility

* Tolerance

* Determination

* Enthusiasm

* Personal sacrifice

Outcomes

Outputs are defined as the positive and negative consequences that an individual perceives a participant has incurred as a consequence of his/her relationship with another. Outputs can be both tangible and intangible (Walster, Traupmann & Walster, 1978). Typical outcomes include any of the following:

* Love

* Sex

* Intimacy

* Security

* Esteem

* Salary

* Employee benefit

* Expenses

* Recognition

* Reputation

* Responsibility

* Sense of achievement

* Praise

* Thanks

Propositions

Equity Theory is fairly parsimonious. It consists of four propositions:

1. Individuals seek to maximize their outcomes (where outcomes are defined as rewards minus costs)[1].

2. Groups can maximize collective rewards by developing accepted systems for equitably apportioning rewards and costs among members. Systems of equity will evolve within groups, and members will attempt to induce other members to accept and adhere to these systems. The only way groups can induce members to equitably behave is by making it more profitable to behave equitably than inequitably. Thus, groups will generally reward members who treat others equitably and generally punish (increase the cost for) members who treat others inequitably.

3. When individuals find themselves participating in inequitable relationships, they become distressed. The more inequitable the relationship, the more