LAHORE COLLEGE FOR WOMEN UNIVERSITY
DEPARTMENT OF MANAGEMENT SCIENCES
ORGNISATIONAL BEHAVIOUR

ASSIGNMENT TOPIC: EQUITY THEORY

SUBMITTED TO:
MS. SHAISTA JABEEN

SUBMITTED BY:

SONIA TAUHID

848
BBA-VIII

INTRODUCTION TO EQUITY THEORY

There was a time when employers thought employees to be just another input required for production of output, that is, goods and services. This thinking was changed with the research conducted known as Hawthorne Studies, by Elton Mayo from 1924 to 1932. This study showed that employees are not just motivated by the money. Thus, the Hawthorne Studies initiated the human relations approach to management and the needs and motivation of employees was the primary consenter of managers. Equity theory helps propose the idea about individuals who think of themselves as over-rewarded or under-rewarded. These individuals will experience distress that tries to restore balance. Equity thus measures the contributions and benefits earned by each individual. It is not necessary one needs to put in exactly the same contribution as the other partner, as long as there is a balance between contributions and benefits. Thus, every individual employee feels his contribution and work needs to be rewarded with equal pay. If the individual feels underpaid, s/he will come under distress and feel hostile towards the company. To avoid this feeling of hostility, equity theory comes into play.
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 (and input) is higher. The way people base their experience with satisfaction for their job is to make comparisons with themselves to people they work with. If an employee notices that another person is getting more recognition and rewards for their contributions, even when both have done the same amount and quality of work, it would persuade the employee to be dissatisfied. This dissatisfaction would result in the employee feeling underappreciated and perhaps worthless. This is in direct contrast with the idea of equity theory, the idea is to have the rewards (outcomes) be directly related with the quality and quantity of the employees contributions (inputs). If both employees were perhaps rewarded the same, it would help the workforce realize that the organization is fair, observant, and appreciative.
This can be illustrated by the following equation:

ADAM'S EQUITY THEORY OF MOTIVATION
Psychologist John Stacey Adams put forward his equity theory model in 1962. He puts emphasis on the importance of determining motivation as relative and not an absolute factor. The equity theory of motivation deals with one's own perception and not any other objective indicator.

This equity theory can be defined in following terms:

“Concept that people derive job satisfaction and motivation by comparing their efforts (inputs) and income (outputs) with those of the other people in the same or other firms.”

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

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 – entitling him/her to rewards – or liabilities - entitling him/her to costs.
Inputs typically include any of the following: * Time * Effort * Loyalty * Hard Work * Commitment * Ability * Adaptability * Flexibility * Tolerance * Determination * Enthusiasm * Personal sacrifice * Trust in superiors * Support from co-workers and colleagues * Skill

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. Typical outcomes include any of the following: * Job security * Salary * Employee benefit * Recognition * Reputation * Responsibility * Sense of achievement * Praise * Thanks
PROPOSITIONS
Equity theory consists of four propositions: 1. Individuals seek to maximize their outcomes (where outcomes are defined as rewards minus costs). 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 encourage 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 distress individuals feel. According to equity theory, both the person who gets “too much” and the person who gets “too little” feel distressed. The person who gets too much may feel guilt or shame. The person who gets too little may feel angry or humiliated. 4. Individuals who perceive that they are in an inequitable relationship attempt to eliminate their distress by restoring equity. The greater the inequity, the more distress people feel and the more they try to restore equity.
EQUITY THEORY IN BUSINESS
Equity theory has been widely applied to business settings by industrial psychologists to describe the relationship between an employee's motivation and his or her perception of equitable or inequitable treatment. In a business setting, the relevant dyadic relationship is that between employee and employer. Equity theory in business, introduces the concept of social comparison, whereby employees evaluate their own input/output ratios based on their comparison with the input/outcome ratios of other employees. The perceptions of employees about inequity are actually perceptions of organizational justice, or more specifically, injustice. Subsequently, the theory has wide-reaching implications for employee morale, efficiency, productivity, and turnover.
ASSUMPTIONS OF EQUITY THEORY APPLIED TO BUSINESS
The three primary assumptions applied to most business applications of equity theory can be summarized as follows: 1. Employees expect a fair return for what they contribute to their jobs, a concept referred to as the “equity norm”. 2. Employees determine what their equitable return should be after comparing their inputs and outcomes with those of their coworkers. This concept is referred to as “social comparison”. 3. Employees who perceive themselves as being in an inequitable situation will seek to reduce the inequity either by distorting inputs and/or outcomes in their own minds (“cognitive distortion”), by directly altering inputs and/or outputs, or by leaving the organization.
IMPLICATIONS FOR MANAGERS
Equity theory has several implications for business managers: * People measure the totals of their inputs and outcomes. This means a working mother may accept lower monetary compensation in return for more flexible working hours. * Different employees attribute personal values to inputs and outcomes. Thus, two employees of equal experience and qualification performing the same work for the same pay may have quite different perceptions of the fairness of the deal. * Employees are able to adjust for purchasing power and local market conditions. Thus a teacher from Alberta may accept lower compensation than his colleague in Toronto if his cost of living is different, while a teacher in a remote African village may accept a totally different pay structure. * Although it may be acceptable for more senior staff to receive higher compensation, there are limits to the balance of the scales of equity and employees can find excessive executive pay demotivating. * Staff perceptions of inputs and outcomes of themselves and others may be incorrect, and perceptions need to be managed effectively. * An employee who believes he is over-compensated may increase his effort. However he may also adjust the values that he ascribes to his own personal inputs. It may be that he or she internalizes a sense of superiority and actually decrease his efforts.
HOW TO INOCULATE ADAM'S EQUITY THEORY OF MOTIVATION IN AN ORGANIZATION
Employees compare themselves with other employees who do not put in the inputs that are equal to the outputs they receive. They tend to compare themselves with other employees to find out if they are being treated fairly. Employees may seek a balance between their inputs and outputs and it is not always possible to give them correct balance. To give a fair outcome to all employees, the managers should try to understand the employees better. They should know what the employee are aiming for and try to give them the best possible reward they expect.
Basically managers should understand what is to be done and the actions taken that will help motivating the employees. Managers should try to tie the rewards to employee performance. It means when the rewards should match the amount of performance put forward by the employee. The managers should hold regular meetings with the employees and discuss goal setting and personal development. They should be able to set goals for their team and help them create a personal development plan. A reward and recognition plan will help in increasing good performance that is noticed and shared by employees.
It is not possible for the manager to treat each employee equally. You need to recognize the rewards that motivate individual employee. You can consider equity theory examples like flexible working hours for working mothers or across the board wage increase or giving responsibility with some amount of authority. In the end, research has shown that 'Equity theory of motivation' works when over-rewarded employees produce more high quality service and under-rewarded employees tend to decrease their input.
CRITICISMS
Criticism has been directed toward both the assumptions and practical application of equity theory. Scholars have questioned the simplicity of the model, arguing that a number of demographic and psychological variables affect people's perceptions of fairness and interactions with others. Furthermore, much of the research supporting the basic propositions of equity theory has been conducted in laboratory settings, and thus has questionable applicability to real-world situations. Critics have also argued that people might perceive equity/ inequity not only in terms of the specific inputs and outcomes of a relationship, but also in terms of the overarching system that determines those inputs and outputs. Thus, in a business setting, one might feel that his or her compensation is equitable to other employees', but one might view the entire compensation system as unfair.
CONCLUSION
Much like the five levels of needs determined by Maslow and the two factors of motivation as classified by Herzberg (intrinsic and extrinsic), the Adams' Equity Theory of motivation states that positive outcomes and high levels of motivation can be expected only when employees perceive their treatment to be fair. An employee's perception of this may include many factors. The idea behind Adams' Equity Theory is to strike a healthy balance here, with outputs on one side of the scale; inputs on the other – both weighing in a way that seems reasonably equal. If the balance lies too far in favor of the employer, some employees may work to bring balance between inputs and outputs on their own, by asking for more compensation or recognition. Others will be demotivated, and still others will seek alternative employment.

REFERENCES * http://en.wikipedia.org/wiki/Equity_theory * http://www.buzzle.com/articles/equity-theory-of-motivation.html * http://www.businessballs.com/adamsequitytheory.htm * http://www.ehow.com/about_5368553_equity-theory-job motivation.html#ixzz1rwxZYjee * http://www.mindtools.com/pages/article/newLDR_96.htm * http://www.businessdictionary.com/definition/equity-theory.html