Equity Theory

John Stacey Adams, a workplace and behavioural psychologist, put forward his Equity Theory on job motivation in 1963. There are similarities with Charles Handy's extension and interpretation of previous simpler theories of Maslow, Herzberg and other pioneers of workplace psychology, in that the theory acknowledges that subtle and variable factors affect each individual's assessment and perception of their relationship with their work, and thereby their employer. However, awareness and cognizance of the wider situation - and crucially comparison - feature more strongly in Equity Theory than in many other earlier motivational models.

The Adams' Equity Theory model therefore extends beyond the individual self, and incorporates influence and comparison of other people's situations - for example colleagues and friends - in forming a comparative view and awareness of Equity, which commonly manifests as a sense of what is fair.

When people feel fairly or advantageously treated they are more likely to be motivated; when they feel unfairly treated they are highly prone to feelings of disaffection and demotivation. The way that people measure this sense of fairness is at the heart of Equity Theory.

Equity, and thereby the motivational situation we might seek to assess using the model, is not dependent on the extent to which a person believes reward exceeds effort, nor even necessarily on the belief that reward exceeds effort at all. Rather, Equity, and the sense of fairness which commonly underpins motivation, is dependent on the comparison a person makes between his or here reward/investment ratio with the ratio enjoyed (or suffered) by others considered to be in a similar situation.

Adams called personal efforts and rewards and other similar 'give and take' issues at work respectively 'inputs' and 'outputs'.

Inputs are logically what we give or put into our work. Outputs are everything we take out in return.

These terms help emphasise that what people put into their work includes many factors besides working hours, and that what people receive from their work includes many things aside from money.

Adams used the term 'referent' others to describe the reference points or people with whom we compare our own situation, which is the pivotal part of the theory.

Adams Equity Theory goes beyond - and is quite different from merely assessing effort and reward. Equity Theory adds a crucial additional perspective of comparison with 'referent' others (people we consider in a similar situation). Equity theory thus helps explain why pay and conditions alone do not determine motivation.

In terms of how the theory applies to work and management, we each seek a fair balance between what we put into our job and what we get out of it. But how do we decide what is a fair balance? The answer lies in Equity Theory. Importantly we arrive at our measure of fairness - Equity - by comparing our balance of effort and reward, and other factors of give and take - the ratio of input and output - with the balance or ratio enjoyed by other people, whom we deem to be relevant reference points or examples ('referent' others). Crucially this means that Equity does not depend on our input-to-output ratio alone - it depends on our comparison between our ratio and the ratio of others.

We form perceptions of what constitutes a fair ratio (a balance or trade) of inputs and outputs by comparing our own situation with other 'referents' (reference points or examples) in the market place as we see it. In practice this helps to explain why people are so strongly affected by the situations (and views and gossip) of colleagues, friends, partners etc., in establishing their own personal sense of fairness or equity in their work situations.

Adams' Equity Theory is therefore a far more complex and sophisticated motivational model than merely assessing effort (inputs) and reward (outputs).

The actual sense of equity or fairness (or inequity or unfairness) within Equity Theory is arrived at only after incorporating a comparison between our own input and output ratio with the input and output ratios that we see or believe to be experienced or enjoyed by others in similar situations.

This comparative aspect of Equity Theory provides a far more fluid and dynamic appreciation of motivation than typically arises in motivational theories and models based on individual circumstance alone.

For example, Equity Theory explains why people can be happy and motivated by their situation one day, and yet with no change to their terms and working conditions can be made very unhappy and demotivated, if they learn for example that a colleague (or worse an entire group) is enjoying a better reward-to-effort ratio.

It also explains why giving one person a promotion or pay-rise can have a demotivating effect on others.

Note also, importantly, that what matters is the ratio, not the amount of effort or reward per se. This explains for example why and how full-time employees will compare their situations and input-to-output ratios with part-time colleagues, who very probably earn less, however it is the ratio of input-to-output - reward-to-effort - which counts, and if the part-timer is perceived to enjoy a more advantageous ratio, then so this will have a negative effect on the full-timer's sense of Equity, and with it, their personal motivation.

Remember also that words like efforts and rewards, or work and pay, are an over-simplification - hence Adams' use of the terms inputs and outputs, which more aptly cover all aspects of what a person gives, sacrifices, tolerates, invests, etc., into their work situation, and all aspects of what a person receives and benefits from in their work and wider career, as they see it.

If we feel are that inputs are fairly rewarded by outputs (the fairness benchmark being subjectively perceived from market norms and other comparable references) then generally we are happier in our work and more motivated to continue inputting at the same level.

If we feel that our ratio of inputs to outputs is less beneficial than the ratio enjoyed by referent others, then we become demotivated in relation to our job and employer.

People respond to a feeling of inequity in different ways.

Generally the extent of demotivation is proportional to the perceived disparity with other people or inequity, but for some people just the smallest indication of negative disparity between their situation and other people's is enough to cause massive disappointment and a feeling of considerable injustice, resulting in demotivation, or worse, open hostility.

Some people reduce effort and application and become inwardly disgruntled, or outwardly difficult, recalcitrant or even disruptive. Other people seek to improve the outputs by making claims or demands for more reward, or seeking an alternative job.

Understanding Equity Theory - and especially its pivotal comparative aspect - helps managers and policy-makers to appreciate that while improving one person's terms and conditions can resolve that individual's demands (for a while), if the change is perceived by other people to upset the Equity of their own situations then the solution can easily generate far more problems than it attempted to fix.

Equity Theory reminds us that people see themselves and crucially the way they are treated in terms of their surrounding environment, team, system, etc - not in isolation - and so they must be managed and treated accordingly.

Recent research has been directed at expanding what is meant by equity or fairness. Historically, equity theory focused on distributive justice is the employee’s perceived fairness of the amount and allocation of rewards among individuals. But increasingly equity is though from the standpoint of organizational justice, which we define as an overall perception of what is fair in the workplace. Employees perceive their organizations as just when they believe the outcomes they have received, the way in which the outcomes were received the way the outcomes were received, are fair. One key element of organizational justice is an individual’s perception of justice. In other words, under organizational justice, fairness or equity can be subjective, and it resides in the perception of the person. What one person may see as unfair another may see as perfectly appropriate. In general, people have am egocentric or self serving bias. They see allocations or procedure favoring themselves as fair. For example a recent poll showed that 61 percent of all respondents say that they are personally paying their fair share of taxes, but an almost equal number 54 percent of those polled feel the system as a whole is unfair, saying that some people skirt the system. Fairness often resides in the eye of the beholder, and we tend to be fairly self serving about what we see as fair.

Beyond its focus on perceptions of fairness, the other key element of organizational justice is the view that justice is multidimensional. Organizational justice argues that distributive justice is important. For example, how much we get paid, relative to what we think we should be paid (distributive justice) is obviously important. But, according to justice researchers, how we get paid is just as important.

Beyond distributive justice, the key addition under organizational justice was procedural justice – which is the perceived fairness of the process used to determine the distribution of rewards. Two key elements of procedural justice are process control and explanations. Process control is the opportunity to present one’s point of view about desired outcomes to decision makers. Explanations are clear reasons given to a person by management for the outcome. Thus, for employees to see a process as fair, they need to feel they have some control over the outcome and feel they were given an adequate explanation about why the outcome occurred. Also for procedural fairness, it’s important that a manager is consistent (across people and over time) is unbiased makes decisions based on accurate information and is open to appeals.

Research shows that the effects of procedural justice become more important when distributive justice is lacking. This makes sense. If we don’t get what we want, we tend to focus on why. For example, if your supervisor gives a cushy office to a coworker instead of you, you are much focused on your supervisor treatment of you than if you had gotten the office. Explanations are beneficial when they take the form of post-hoc excuses (admitting that the act is an unfavorable but denying sole responsibility for it) rather than justification (accepting full responsibility, but denying that the outcome is unfavorable or inappropriate). In the office example, an excuse would be "I know this is bad. I wanted to give you the office but it was not my decision” and a justification would be, "Yes. I decided to give the office to Sam, but having the corner office is not that big of a deal”.

Expectancy Theory

Vroom's theory assumes that behavior results from conscious choices among alternatives whose purpose it is to maximize pleasure and minimize pain. The key elements to this theory are referred to as Expectancy (E), Instrumentality (I), and Valence (V). Critical to the understanding of the theory is the understanding that each of these factors represents a belief.

The Expectancy Theory of Victor Vroom deals with motivation and management. Together with Edward Lawler and Lyman Porter, Vroom suggested that the relationship between people's behavior at work and their goals was not as simple as was first imagined by other scientists. Vroom realized that an employee's performance is based on individual’s factors such as personality, skills, knowledge, experience and abilities.

The expectancy theory says that individuals have different sets of goals and can be motivated if they believe that:

·         There is a positive correlation between efforts and performance,

·         Favorable performance will result in a desirable reward,

·         The reward will satisfy an important need,

·         The desire to satisfy the need is strong enough to make the effort worthwhile.

Vroom's Expectancy Theory is based upon the following three beliefs:

1. Valence (Valence refers to the emotional orientations people hold with respect to outcomes [rewards]. The depth of the want of an employee for extrinsic [money, promotion, time-off, benefits] or intrinsic [satisfaction] rewards). Management must discover what employees value.
2. Expectancy (Employees have different expectations and levels of confidence about what they are capable of doing). Management must discover what resources, training, or supervision employees need.
3. Instrumentality (The perception of employees whether they will actually get what they desire even if it has been promised by a manager). Management must ensure that promises of rewards are fulfilled and that employees are aware of that.

Vroom suggests that an employee's beliefs about Expectancy, Instrumentality, and Valence interact psychologically to create a motivational force such that the employee acts in ways that bring pleasure and avoid pain. This force can be 'calculated' via the following formula: Motivation = Valance × Expectancy (Instrumentality). This formula can be used to indicate and predict such things as job satisfaction, one's occupational choice, the likelihood of staying in a job, and the effort one might expend at work.

Vroom's theory suggests that the individual will consider the outcomes associated with various levels of performance (from an entire spectrum of performance possibilities), and elect to pursue the level that generates the greatest reward for him or her.

Expectancy refers to the strength of a person's belief about whether or not a particular job performance is attainable. Assuming all other things are equal, an employee will be motivated to try a task, if he or she believes that it can be done. This expectancy of performance may be thought of in terms of probabilities ranging from zero (a case of "I can't do it!") to 1.0 ("I have no doubt whatsoever that I can do this job!")

A number of factors can contribute to an employee's expectancy perceptions:

·         the level of confidence in the skills required for the task

·         the amount of support that may be expected from superiors and subordinates

·         the quality of the materials and equipment

·         the availability of pertinent information

Previous success at the task has also been shown to strengthen expectancy beliefs.

Instrumentality

e.g. "What's the probability that, if I do a good job, that there will be some kind of outcome in it for me?"

If an employee believes that a high level of performance will be instrumental for the acquisition of outcomes which may be gratifying, then the employee will place a high value on performing well. Vroom defines Instrumentality as a probability belief linking one outcome (a high level of performance, for example) to another outcome (a reward).

Instrumentality may range from a probability of 1.0 (meaning that the attainment of the second outcome — the reward — is certain if the first outcome — excellent job performance — is attained) through zero (meaning there is no likely relationship between the first outcome and the second). An example of zero instrumentality would be exam grades that were distributed randomly (as opposed to be awarded on the basis of excellent exam performance). Commission pay schemes are designed to make employees perceive that performance is positively instrumental for the acquisition of money.

For management to ensure high levels of performance, it must tie desired outcomes (positive valence) to high performance, and ensure that the connection is communicated to employees. The VIE theory holds that people have preferences among various outcomes. These preferences tend to reflect a person's underlying need state.

Valence

"Is the outcome I get of any value to me?"

The term Valence refers to the emotional orientations people hold with respect to outcomes (rewards). An outcome is positively valent if an employee would prefer having it to not having it. An outcome that the employee would rather avoid ( fatigue, stress, noise, layoffs) is negatively valent. Outcomes towards which the employee appears indifferent are said to have zero valence. Valences refer to the level of satisfaction people expect to get from the outcome (as opposed to the actual satisfaction they get once they have attained the reward).

Vroom suggests that an employee's beliefs about Expectancy, Instrumentality, and Valence interact psychologically to create a motivational force such that the employee acts in ways that bring pleasure and avoid pain.

People elect to pursue levels of job performance that they believe will maximize their overall best interests (their subjective expected utility).

There will be no motivational forces acting on an employee if any of these three conditions hold:

·         the person does not believe that he/she can successfully perform the required task

·         the person believes that successful task performance will not be associated with positively valent outcomes

·         the person believes that outcomes associated with successful task completion will be negatively valent (have no value for that person).

Expectancy Theory Relationships

The motivation ‘value’ is also linked to how that person views the attractiveness of that outcome. The theory focuses on three relationships:

The first of these is the… Effort = Performance Relationship (How hard will I have to work?)

Looking at this proposition, if employees do not perceive themselves as competent (having the skills and knowledge they need) they may believe that no matter how much effort they exert they will not receive recognition as a top performer. Often this undesirable situation is reinforced by a performance appraisal system that takes into account such factors as loyalty, initiative, courage, third party perceptions on a person’s ability to be promoted and even the employees general presentation.

If you need to inspire for top performance you need to strongly link efforts to rewards.

Expectancy Theory also offers a number of insights into why many people are not motivated in their jobs. The "expectation” is based on an individual’s belief that their actions will be followed by a given outcome and particularly on the attractiveness of that outcome. The second linkage that the theory focus’s on is the:

Performance = Reward linkage (What is the reward?)

Many employees see the performance reward linkage as being very weak. This particularly occurs when the organization completes a performance appraisal then does something stupid like give an across the board, 5% salary increase to everyone. Performance management (inspiration) is a process and needs to be a whole year ongoing effort that includes, vision sharing, personal development discussions, training, counseling and action planning as well as the annual performance appraisal.

The theory offers one more linkage insight into why many people are not motivated in their job. The last of the three links or relationships is:

The Reward = Attractiveness (Personal Goal) relationship (How attractive is the reward?)

In this last relationship the individual’s personal judgments and personal goals come strongly into play. If you offer a promotion to someone who is looking for more intellectually challenging technical problems/opportunities the reward offered will be ineffective. More money may not be attractive to someone who craves more personal time to be with his or her family.

The key message this theory offers for effective leader/managers is that it demonstrates the need for leaders to have a sound understanding of an INDIVIDUALS goals and aspirations and their perceived linkage between effort and performance, performance and rewards and finally rewards and individual goal satisfaction.