Equity theory is a concept studied in management and social policy to determine if the sharing of resources is fair. Fairness is measured by comparing how much each person contributes (such as effort or time) to how much they receive (such as pay or recognition) in a group or organization. Equity theory is one of the theories about fairness and was first introduced in the 1960s by John Stacey Adams, a psychologist who studied workplace behavior. He believed that people want to keep a balance between what they give to a job and what they receive compared to what others give and receive. According to equity theory, systems are created to divide resources fairly among group members. When unfairness happens in relationships, people involved often feel unhappy, and the level of unhappiness depends on how unfair the situation is. The idea is that people value fairness, which motivates them to ensure fairness in their relationships with coworkers and within their organization. In the workplace, equity depends on the balance between what employees contribute and what they receive. This theory can also be used to understand fairness in larger social situations.

Background

Equity theory comes from Social Exchange Theory. It suggests that people who feel they are not getting enough or getting too much in a relationship may feel unhappy. This unhappiness often leads them to try to fix the balance in the relationship. Equity is checked by looking at how much each person gives and receives. People in a relationship do not need to get the same things (like love, care, or money) or give the same amount (like time, effort, or money), as long as the balance between what they give and what they get is similar. Like other theories about motivation, such as Maslow’s hierarchy of needs, equity theory says that personal differences affect how people see their relationships. According to Adams in 1965, feeling underpaid can cause anger, and feeling overpaid can cause guilt. Pay, such as wages or salaries, is often the main reason for feeling balanced or unbalanced in most situations.

In any job, workers want to feel that their work and effort are matched by their pay. If a worker feels underpaid, they may become angry with their employer or coworkers, which can lead to poor work performance. Small differences, like being thanked for good work, can also affect how balanced a person feels. Workers might also feel positive imbalance, which can cause guilt and make them try to fix it.

People compare their efforts and results with others and take action to fix any unfairness they notice. This includes looking at things like pay, promotions, or how hard others work.

Inputs are what people give to a relationship, and they can lead to rewards or costs. These inputs can be things like time, education, experience, effort, loyalty, hard work, commitment, ability, adaptability, tolerance, determination, enthusiasm, personal sacrifice, trust in leaders, support from coworkers, and skills. Inputs can be seen as helpful (like money or work) or harmful (like unkindness) depending on the situation. In workplaces, things like money and labor are considered important for rewards. In social situations, things like kindness or appearance may be seen as helpful for social rewards, while traits like rudeness may be seen as harmful.

Outputs are the results people get from a relationship, which can be good or bad. These include things like job security, pay, benefits, recognition, reputation, responsibility, a sense of achievement, praise, thanks, or other experiences. When the balance between what someone gives and what they get is fair, they are more likely to be happy with their job.

Equity theory has four main ideas:

• Self-inside: People try to get the most benefits while keeping costs low.
• Self-outside: Groups can work better together by creating fair ways to share rewards and costs. Groups often reward people who act fairly and punish those who act unfairly.
• Others-inside: When people feel their relationships are unfair, they feel unhappy. Both the person who gets too much and the person who gets too little feel this way. The person who gets too much may feel guilty, and the person who gets too little may feel angry.
• Other-outside: People who feel their relationships are unfair try to fix the problem. The bigger the unfairness, the harder they try to make things fair.

Practical applications

Equity theory is often used in business by industrial psychologists to explain how employees feel about their work and whether they believe they are treated fairly or unfairly. In a business setting, the main relationship studied is between an employee and their employer. Like in marriage or other agreements between two people, equity theory suggests that employees want to keep a fair balance between what they give to their job (such as time, skills, effort, and personal qualities) and what they receive in return (like pay, benefits, or flexible work options). However, equity theory also includes the idea that employees compare their own efforts and rewards to those of other workers. If they feel their situation is unfair, they may try to fix it by changing how they see things, adjusting their work or rewards, or leaving the company. These feelings of unfairness relate to how people view fairness in organizations. This theory affects how employees feel about their work, how well they perform, and whether they stay in their jobs.

The main ideas of equity theory in business are:

• Employees expect to be treated fairly for the work they do. This is called the "equity norm."
• Employees decide if they are being treated fairly by comparing their own efforts and rewards to those of their coworkers. This is called "social comparison."
• Employees who feel things are unfair may try to fix the problem by changing how they think about their situation, changing their work or rewards, or leaving the company.

Equity theory is also used to study personal relationships. Scholars say the theory helps explain how people in relationships, such as romantic partners, evaluate whether they are being treated fairly. They believe it can help explain why people choose certain partners, how relationships work, and why unfairness in a relationship might cause sadness or stress. This idea has been used to study different types of relationships, including ones where one person takes more, ones where people help each other equally, and ones where one person gives more. Scholars also note that unfairness in relationships can lead to emotional problems like sadness or depression.

Implications for managers

Equity theory has several important ideas for business managers:

• People compare how much they contribute (inputs) and how much they receive (outcomes). For example, a working mother might accept less money if she gets more flexible work hours.
• Employees may value inputs and outcomes differently. Two workers with the same experience and job duties might feel the same pay is fair or unfair, depending on their personal beliefs.
• Workers consider the cost of living in their area. A teacher in Alberta might accept lower pay than a teacher in Toronto if living costs are lower there. A teacher in a remote African village might agree to a different pay plan based on local conditions.
• It is common for more experienced workers to earn more, but there are limits to how much pay differences are acceptable. Very high pay for top leaders can make other workers feel unfair or unmotivated.
• Employees might not always correctly understand how fair their own or others’ work and pay are. These beliefs should be addressed carefully.
• A worker who thinks they are paid too much might work harder. However, they might also change how they see their own contributions. They could feel superior and end up working less hard instead.

Criticisms and related theories

Criticism has been made about the ideas and real-world use of Equity Theory by scholars like Leventhal. They argue that Equity Theory only looks at one aspect, ignores how decisions are made, and overestimates how important fairness is in social situations. Some researchers have pointed out that the model is too simple, as many factors, such as personal background and mental traits, influence how people see fairness and interact with others. Also, most studies supporting Equity Theory were done in labs, which may not apply well to real-life situations. Critics also say that people may see fairness not just based on what they give or receive in a relationship, but also based on the larger system that decides those things. For example, someone might think their pay is fair compared to others, but still believe the whole pay system is unfair.

Researchers have suggested many different and competing ideas:

The Equity Sensitivity Construct says that people have different preferences about fairness and react differently to situations they see as fair or unfair. These preferences range from wanting to receive much less than others to wanting to receive much more. Three main types of people are described:

• Benevolent people, who prefer to receive less than others in a relationship. They are okay with being under-benefited.
• Equity-sensitive people, who prefer to receive the same as others in a relationship.
• Entitled people, who prefer to receive more than others in a relationship. They are okay with being over-benefited.

The Fairness Model offers a different way to measure fairness compared to the standard idea in Equity Theory. According to this model, people judge how fair a relationship is by comparing their own efforts and rewards to their own personal standards, not just to others. This model allows people to consider how fair the larger system that sets rules for a relationship might be when they evaluate their own experiences.

In recent years, Behavioral Economics has started using game theory to study Equity Theory. For example, Gill and Stone (2010) examined how fairness affects decisions in situations where people compete, and how this influences the best ways to create labor contracts.

Literature

• Adams, J. S. (1963). "Toward an understanding of inequity." Journal of Abnormal and Social Psychology. 67 (5): 422–436. doi: 10.1037/h0040968. PMID 14081885.
• Gill, D.; Stone, R. (2010). "Fairness and desert in tournaments" (PDF). Games and Economic Behavior. 69 (2): 346–364. doi: 10.1016/j.geb.2010.01.002.
• Guerrero, Laura K.; Andersen, Peter A.; Afifi, Walid A. (2010). Close Encounters: Communication in Relationships. SAGE Publications. ISBN 978-1-4129-7737-1.
• Huseman, R.C.; Hatfield, J.D.; Miles, E.W. (1987). "A New Perspective on Equity Theory: The Equity Sensitivity Construct." The Academy of Management Review. 12 (2): 222–234. doi: 10.2307/258531. JSTOR 258531.
• Messick, D. & Cook, K. (1983). Equity theory: psychological and sociological perspectives. Praeger.
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• Spector, P.E. (2008). Industrial and Organizational Behavior (5th ed.). Hoboken, NJ: Wiley.
• Traupmann, J. (1978). A longitudinal study of equity in intimate relationships. Unpublished doctoral dissertation, University of Wisconsin.
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• Walster, E.; Traupmann, J.; Walster, G.W. (1978). "Equity and Extramarital Sexuality." Archives of Sexual Behavior. 7 (2): 127–142. doi: 10.1007/BF01542062. PMID 666565. S2CID 25148016.