OBWerks: Some Introductory Organizational Behaviour Topics: EQUITY THEORY OF MOTIVATION

EQUITY THEORY OF MOTIVATION

OBNotes.HTM by WILF H. RATZBURG

	Behavioral Consequences of Rewards
.	The distribution of rewards in organizations has important behavioral consequences. Employees are rarely passive observers of the events that occur around them at the workplace. They are observers and, perhaps more importantly, they evaluate the events they observe. It will be useful to use exchange theory to try to understand these evaluative processes.
.	Exchange Theory
.	Exchange theories are based on two assumptions about human behavior.
.	there is an assumed similarity between the process through which individual evaluate their social relationships and their economic transactions in the market. Contributions to the social relationship may be perceived as investments for which people expect some return (it is assumed that people do not enter into social relationships without some expectation that the time and resources they commit to them will be somehow be returned)
.	it is assumed that people demand fairness in their social interactions and that information about the perceived fairness is obtained by observation of what others get out of the relationship.
Where there is relative equality between outcomes and contributions of both parties to an exchange, satisfaction is likely to result.	To summarize, individuals in social interactions behave in a manner similar to that posited for the "economic man" of classical economics. The assumption is that individuals are motivated to maximize their rewards and minimize their costs
.	Perception: Inputs Compared with Outputs
The important consideration is that each person evaluates his or her outcomes and inputs by comparing them with those of others.	The major components of exchange relationships are inputs and outcomes. Inputs, like investments, are what a person puts into the relationship. Outcomes are the things that result from the exchange. The relative importance of the inputs and outputs is a matter of perception. Only I can really say how much value I place on whatever input I have in the exchange. My expectations with respect to output will depend on whatever value I have placed on my inputs, and this may have very little to do with any objective characteristics of the situation.
.	Equity: the Input / Output Ratio
	Equity is said to exist whenever the ratio of my outcomes to inputs is equal to the ratio of the other person's outcomes and inputs. For example, employees may exhibit satisfaction on a job that demands a great deal and for which they receive very little if, and only if, their coworkers are in similar positions.

	Equity theory (see Adams, 1965; and Walster, Walster, and Berscheid, 1978) suggests that individuals evaluate the ratio of their inputs to outcomes for a given job in relation to other, referent employees.Inequity is assumed (or percieved) to exist if the ratios are not equal. As a result of the tension thus created by this inequity, employees are motivated to restore equity. Outcomes or inputs may be altered (both objectively or psychologically); comparative referents (employees being compared) may be changed; or the employee may withdraw from the situation The major postulates of Equity Theory can be summarized: (1) perceived inequity creates tension in the individual (2) the amount of tension is proportional to the magnitude of the perceived inequity (3) the tension created in the individual will motivate him or her to reduce it (4) the strength of the motivation to reduce inequity is proportional to the perceived inequity
.	Consequences of Perceived Inequity
Equity theory suggests that underrewarded individuals might be motivated to decrease their performance in an effort to restore equity	Equity theory suggests that overrewarded individuals might be motivated to increase their performance and underrewarded individuals to decrease their performance in an effort to restore equity. However, very often, overrewarded employees will find ways to rationalize their overreward; they assume they "deserve" it.
.	The concept of equity is most often interpreted as a positive association between an employee's effort on the job and the pay he or she receives. Whoever contributes more is believed to be entitled to more of the outputs. This may be referred to as the equity norm. This equity norm is generally learned through a process of socialization. For example, most groups establish norms that induce members to behave equitably.However, our society also promotes other notions of equity or fairness. In social welfare systems or old-age medical assistance schemes, resources -- outputs -- are distributed according to need. In general, our society appears to also have norms that accept this distribution of outputs as equitable. In trying to predict how an individual will react to a particular reward system, we need to know which equity norm they believe should be applied; one based on inputs or one based on need.
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